Interest rate drop to brighten outlook

“Relaxing interest rates is crucial to banks, businesses and the economy. No bank wants slowing credit growth as credit operations contribute up to 70 per cent of banking system profits. Lending export sector is our focus,” said VIB’s foreign exchange director Le Quang Trung.

Trung, however, said firms needed to step up to meet banks’ increasingly stringent lending requirements.

“Credit in the whole banking system contracted in the first three months of the year. Banks and firms could not ‘meet’ each other if lending rates continue to fetch over 15 per cent per year,” said Trung.

Hanoi Real Estate Club chairman Nguyen Huu Cuong said the move was good news to the current sleepy property market.

The executive of a bank belonging to G-12 group - a group of 12 local leading banks holding up to 85 per cent banking sector market share - said: “Though the State Bank has loosened lending to property, our bank will continue promoting lending to export, food and consumer goods production. In the past, securities and property lending brought banks marginal profits, but scores of banks also lost their feet due to such lending in the past years.”  

Firms said it was unlikely lending rates to quickly sink to 13-16 per cent as expected though central bank had slashed the ceiling deposit rate to 12 per cent, per year from April 11.

In fact, shortly after central bank’s move many banks aired preferential credit packages with interest rates ranging from 14-16 per cent, per year.

However, a central bank executive said it was important banks protect themselves amid surging bad debts.

State Bank figures show that banking system’s current bad debt rate was 3.6 per cent against 3.2 per cent by late 2011 and this was even higher at some credit organisations.

According to central bank governor Nguyen Van Binh, the lending rates were 2-3 per cent lower in the first quarter of 2012 against the end of 2011. Accordingly, lending to priority areas was pegged at 14-16 per cent, per year against commonly regulated ones of 16-18 per cent, per year. Lending to non-priority areas fetched 20-25 per cent, per year.

Binh said: “Bank credit grew 1 per cent in March 2012. If the credit grew 1.5-2 per cent per month in the next months, the set 15-17 per cent credit growth for 2012 would be within reach.”