SBV has recently announced its first interest rate cut in the open market operation (OMO) in the past five years. The move is aimed at supporting domestic firms as it will contribute to reducing the cost of funding for commercial banks, thereby helping them cut lending rates for the firms.
Local production and business firms can be access to loans easier thanks to rate cut
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Previously, at a meeting of the banking industry on January 9, Governor of SBV Le Minh Hung also said that after the meeting, the central bank would issue Resolution 01 on implementing tasks of the banking sector in 2018, in which it would instruct credit institutions to consider a rate cut for lending interest. He said the central bank would also cut the lending rate in the OMO market to aid institutions.
According to experts, the move will have positive impacts, especially when capital demand is rising significantly to meet consumption and payments given the approaching Lunar New Year.
Economist Le Xuan Nghia, former vice chairman of the National Financial Supervisory Committee, said that bank loans cannot flow into production and business unless interest rates decline.
Following the central bank’s instruction, some commercial banks such as Vietcombank, Agribank and Vietinbank have so far also announced reductions in their lending interest rates this year to support firms.
Vietcombank and Agribank have recently announced that they would cut interest rates on short-term loans in priority sectors this year, followed up on the Government’s instruction to support domestic production and businesses.
These are the first banks to make public their plan to cut interest rates as per a Government Resolution (No 01/NQ-CP dated 01/01/2018) and instructions from the Governor of the State Bank of Viet Nam, to help ease pressure of high interest expenses for enterprises.
Accordingly, interest rates for short-term dong loans will be lowered to 6 per cent per year. Apart from new loans taken this year, the rate would also apply to existing loans with interest rates higher than 6 per cent.
The policy, which will be effective from January 15 to December 31 this year, will apply to the five priority sectors of agriculture businesses, firms producing goods for export, small- and medium-sized enterprises, enterprises operating in auxiliary industries, as well as hi-tech enterprises including startups.
Agribank has also reduced its annual interest rates for short-term loans by 0.5 percentage points from 6.5 per cent to 6 per cent, and those for medium and long-term loans from 8 per cent to 7.5 per cent.
Accordingly, interest rates for short-term dong loans will be lowered to 6 per cent per year. Apart from new loans taken this year, the rate would also apply to existing loans with interest rates higher than 6 per cent in five priority sectors of agriculture businesses, firms producing goods for export, small- and medium-sized enterprises, enterprises operating in auxiliary industries and hi-tech enterprises, including startups.
In 2018, the Government aims at an economic growth of 6.7 per cent after the local economy expanded by a higher-than-expected 6.81 per cent in 2017. Credit growth is set at 17 per cent, slowing from 18.17 per cent last year. However, the central bank said it will closely monitor the market to make suitable adjustments from time to time.
