Banks race to reduce lending rates to facilitate debt repayments

Big commercial banks have launched new loan packages with low interest rates of only 5.6-8% per year to help customers repay their debts at other banks.

These rates are significantly lower compared to the end of 2022.

Interest rates falling rapidly

Immediately after the State Bank of Vietnam (SBV) issued Circular No. 06/2023/TT-NHNN to ease lending conditions from September 1, many banks started contacting customers to offer them low-interest loans to help repay their debts at other banks.

VietinBank, one of four state-owned banks known as the Big 4, launched an interest rate support package for loans serving customers' daily needs. Customers who need to borrow capital to repay loans at other banks can use collateral such as houses and cars to obtain loans at VietinBank with preferential interest rates from only 5.6% per year.

Specifically, individual customers will enjoy an interest rate of from only 5.6% per year for production and business loans and from only 7.5% per year for consumer loans, with value reaching up to 100% of the remaining principal balance on previous loans. The principal debt grace period is up to 24 months and the maximum loan terms are 35 years and must not exceed the due date of the original loans with other banks.

Earlier, Vietcombank was the first one to implement this policy with lending rates of 6.9% for the first six months, 7.5% for the first 12 months, and 8% for the first 24 months.

Another Big 4 member, BIDV, is applying a flat annual interest rate of 6.8%. Customers can borrow money with terms of up to 30 years, but the duration cannot exceed the due date of the original loans with other banks. The maximum loan has been set at 100% of the remaining principal balance on the previous loan.

Rate reduction not enough to solve "excess money" problem

The State Bank of Vietnam reported that in the year to August 29, Vietnam’s credit reached about VND12,560 trillion ($522.14 billion), up only 5.33% from the end of last year. The figure was low compared to an increase of 9.87% in the same period last year.

Although credit has increased again, the growth rate is still very low, the SBV said, adding the liquidity of the credit institution system is redundant and there is still a lot of room for credit growth (about 9% left, equivalent to about VND1,000 trillion or $41.57 billion).

Dr. Vo Tri Thanh, an economist, believed that to increase people and businesses' credit access and the economy's ability to absorb capital, it is necessary to find comprehensive solutions for both the economy and the banking system.

He emphasized the need for a harmonious and effective combination between financial and monetary policies, especially in the current context when room for the monetary policy narrows (mainly related to interest rates). “Now we should study appropriate and effective solutions to promote fiscal policy,” he noted.

Regarding credit, it is necessary to clearly distinguish the policy of the SBV and the activities of commercial banks. The SBV needs to continue operating monetary policy wisely, ensuring the safety of the credit system, while commercial banks must operate in accordance with the law and market rules.

“We should carefully calculate and evaluate to direct capital flows into areas capable of recovery and development and those leading the economy, coupled with solutions to stimulate consumption and promote exports, accelerate disbursement of public investment capital, and support the domestic private sector to improve production and business capacity,” he said.

Meanwhile, Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, emphasized that in the current difficult context, Vietnam still has the advantage of a stable macroeconomic foundation.

“In addition to solving immediate problems, at this time we should discuss long-term issues, considering which industries and fields can pull the country of 100 million people up in the coming time in order to formulate suitable and effective solutions,” he noted.