Banks scramble to raise lending rates

According to a source from a Hanoi big commercial joint stock bank, from May 16 the bank started to work with personal customers on lending rate hike.

“With current high deposit rates of 14 per cent per year, we inevitably have to scale up lending rates to cover escalating operational costs,” said the bank representative.

He said the revision of lending rates was included in credit contracts the bank signed with its customers.  

“The move is important since current loans in the banking system see their deposit rates capped at 12.75 to 14 per cent per year,” said the bank representative.

The bank’s revised lending rates now stay at 22-24 per cent, per year.

These highest ever lending rates are applied by a number of banks. For instance, SeaABank’s rate is 24 per cent per year, VietBank 22-23 per cent, Eximbank 22 per cent, ACB 21-23 per cent and Techcombank over 23 per cent per year.

High lending rates will make customers think twice before taking a loan. This is a way for banks to reduce consumer loans particularly and loans to non-productive areas to conform with the central bank’s Directive 01/CT-NHNN dated March 1, 2011 which requires banks to reduce lending to non-productive areas to less than 22 per cent of total outstanding loans as of June 30, 2011 and less than 16 per cent as of December 31, 2011.

Reducing personal loans goes against the will of banks, particularly small ones, since it is one of their main income earners. The high lending rates to non-productive areas have driven banks to scale up their lending rates.

As regulated, for credit contracts containing a term on lending rate revision, the revision cycle is often every three to six months. Banks currently apply the shortest time requirements for revision every three months and the revision level may reach 6-7 per cent per year each time.

Le Thi Phuong Tam, a Ho Chi Minh City borrower, said her family sourced VND500 million ($24,000) from a city bank in mid 2010 to buy an apartment with a14 per cent, per year lending rate. Since then the bank revised the lending rate three times and it now stays at 24 per cent, per year.

Restricting credit to non-productive areas was crucial on the heels of state’s tightening monetary policies to curb inflation, said Le Tham Duong, head of Ho Chi Minh City University of Banking’s Business Administration Faculty.