Lenders pledging more support to businesses

VPBank has been reducing interest rates to support local enterprises hit by the coronavirus outbreak Photo: Dung Minh

Businesses which are particularly hard hit by the global coronavirus, or nCoV, outbreak could get a reduced lending rate, according to Governor of the State Bank of Vietnam (SBV) Le Minh Hung, as Vietnamese policymakers attempt to ward off signs of weaker economic growth.

Hung noted that the spread of the epidemic could have an adverse impact on economic activity and market sentiment in the coming months.

“With economies and financial markets interconnected, expectations of lower interest rates or rescheduling debt payments could dampen the fears of companies that are on the edge of troubles,” he said. Focus must be placed on the most vulnerable sectors such as tourism, agriculture, and exports so measures can be put in place, he said in a recent document sent to commercial banks.

Vietnamese banks are catching up with markets elsewhere in reflecting the threat the epidemic poses to global and domestic growth. In particular, VPBank trimmed its lending rates by 1.5 per cent, targeting around 1,000 clients who have been hit hard by the outbreak. Kien Long Bank cut its lending rates to 3 per cent to support customers in growing dragon fruit, watermelons, durian, jackfruit, mangoes, rambutan, and bananas.

Also, there would be no fee for international transactions for pharmaceuticals and medical firms from HDBank, while ABBank is to allocate VND4 trillion ($174 million) for low-interest loans for businesses which are vulnerable during the nCoV epidemic.

It is hoped that the virus does not pose a serious threat to Vietnam’s decade-long growth expansion yet, but that could change if the virus is not fully contained soon, or spreads more widely, highlighted researchers from SSI Securities Corporation.

The decision to lower rates reflects fears of an immediate pullback in growth as well as concerns about the firms’ inability to generate more revenue amidst the epidemic.

Various causes

Experts stated that the outbreak is not the only reason for lending rate cuts. In Vietnam, a slew of new regulations on capital safety, mobilisation, and consumer finance in the banking industry are predicted to have an immediate and multi-dimensional impact on banking activities.

Analysts at Viet Dragon Securities highlighted that the reduction of short-term capital for medium and long-term loans, as per Circular No.22/2019/TT-NHNN on limits and prudential ratios in operations of banks and/or foreign bank branches, would impose stricter limits on capital mobilisation and ability to expand net interest margin for banks. These regulations will have significant impacts on banks with a thin capital buffer such as VietinBank, or the ratio of short-term capital for medium- and long-term loans such as VIB.

By and large, the SBV wanted to make sure there is ample liquidity for banks to keep rolling their liabilities, namely cash borrowed before the holiday break.

The central bank recently issued VND2.5 trillion ($108.7 million) new treasury bills at 2.65 per cent interest rate with no maturity, meaning the SBV made net cash withdrawal of such a sum of money via the open market operation process.

“As a result, the SBV did not have to inject a substantial amount of money into the Vietnamese financial system to cushion liquidity before Lunar New Year as usual,” said Hoang Minh Hoan, deputy CEO at Sacombank.

Interbank interest rates increased slightly at overnight and weekly terms, respectively by 0.3 and 0.1 per cent, to 3.2 and 3.3 per cent, per year.

The tension in bank system liquidity is forecast to be relieved after the holiday as the peak period of payments ends. Elsewhere, all 10 members of the US central bank’s rate-setting committee voted to hold the Federal Reserve’s benchmark federal-funds rate in a range of 1.5-1.75 per cent.

The Fed also reaffirmed its make-no-moves posture while it gauges how rate cuts last year supported the US economy against a spell of weaker global growth.

Stimulating growth

In Asia, the Bank of Thailand on February 5 announced it would cut policy rate to a record low to cushion the blow of the nCoV epidemic.

The bank’s monetary policy committee lowered its one-day repurchase rate by 0.25 to 1 per cent. The Philippines central bank also cut the benchmark interest rate by 25 basis points on February 6.

Back in Vietnam, Directive No. 01/CT-NHNN dated January 8 on implementation of key tasks of the banking sector in 2020 emphasised that the SBV would “operate monetary policy in a proactive, flexible, and prudent manner, co-ordinating synchronously with the fiscal and other macro-economic policies to control average inflation below 4 per cent and to maintain macro-economic stability, supporting targeted economic growth”.

Economist Nguyen Tri Hieu told VIR, “The need for the rate increase is lessened as the SBV wants to stimulate growth in the downturn.”

In November the SBV lowered the interest rate cap on six-month VND deposits from 5.5 per cent to 5 per cent, prompting many banks to cut deposit rates.

Some mid-sized lenders such as Military Bank, TPBank, Eximbank, and VietCapital also announced reductions to their deposit rates by 0.1-0.2 percentage points on short-term deposits, while larger institutions such as Vietcombank and VietinBank reduced deposit rates by 0.2 percentage points for term deposits of less than nine months.