Two state-owned banks, Vietcombank and BIDV, are early birds taking advantage of loosened regulations to help businesses and individuals repay their debts with other banks.
The lending rates offered by the two “Big 4” banks start at 6% per year.
The loosened regulations could kick off a trend of banks offering low interest loans for settling debts with other credit institutions, experts say.
The easing of lending conditions by the State Bank of Vietnam is contained in the amended Circular No. 06/2023/TT-NHNN that took effect on September 1. This decree complements some articles in Circular No. 39/2016/TT-NHNN.
The loosened regulations are expected to facilitate businesses’ and individuals’ access to additional bank credit, giving them more opportunities and options to benefit from better products and services from other credit institutions.
Vietcombank is the first one to implement a policy that allows individual customers to borrow money for repaying their debts at other banks ahead of schedule at lending rates of 6.9% for the first six months or 7.5% for the first 12 months, and 8% for the first 24 months. Later, it will adjust the lending rate according to the actual situation, the bank said.
The other early bird in the market, 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 amount will be 100% of the remaining principal balance on the previous loan.
To access such credit, customers can use collateral mortgaged with other credit institutions; their deposits; and real estate (their own or that of close relatives).
Loyalty race
Numerous reports have remarked on the nation’s low credit growth this year. According to the central bank, as of August 3, credit had increased by just 4.29% from the end of 2022 to reach VND12,440 trillion ($516.8 billion), especially low considering the credit growth target of 14% for 2023.
The sluggish growth was happening even as authorities were repeatedly asking commercial banks to cut down lending rates to support economic growth.
As of end June, most commercial banks had not achieved 50% of their year profit goals. Low demand for capital because of negative economic prospects and declined exports and imports. Inability of businesses to meet lending requirements also constrained credit growth.
With the amended circular, banks are likely to try and attract their competitors’ customers with lower lending rates and fast approval of loans in a trend likely to last until the end of this year, several experts who declined to be named told The Investor.
With two big commercial banks kickstarting this trend, others are bound to jump on the bandwagon. Banks with low capital input costs (3-4.5%) will have a competitive advantage, including some large-scale ones which can maintain their CASA (current account savings account) deposit ratios like Vietcombank, BIDV, Vietinbank, MBBank and Techcombank.
Easier said than done
Despite the easing of lending conditions, it will not be easy for banks to win over competitors’ customers, the experts cautioned.
For one, most banks will try to retain their customers by providing them with lower lending rates and other incentives.
Besides, borrowers wanting to repay long-term loans within the first five years will have to bear a fee of 0.5-3% of the loan part repaid ahead of schedule. When this is added to other costs incurred in getting a new loan, the lending rate can, in effect, increase by 1-4 percetage points for the first year of the loan.
For instance, the BIDV’s 6.8% interest rate for the first year of medium and long-term loans can go up to 8-11% if settlement costs, early repayment fees and new loan costs are added. Of course, customers can benefit if interest rates from the second year onward remain low at 6-8%.
Experts say that regulations loosened by Circular 06 will facilitate debt consolidation and restructuring. Previously, if customers wanted to swap their debt between banks, they had to use other assets as collateral for a new loan before repaying old debts and withdrawing collateral related to old debts.
Therefore, while the new regulations present the possibility of customers being able to enhance their credit access and have more opportunities to choose better products and services at other banks, a significant saving or reduction in credit costs is not guaranteed.
Banks stand to benefit if they position themselves well to seize the current opportunity, using the advantage of low-cost capital at their disposal. This has the potential to boost overall credit growth but the actual impacts cannot be predicted with certainty, the experts said.