Vietnam's banking sector has reduced deposit interest rates by 1-1.2 percentage points and loan interest rates by 0.5-0.65 percentage points in the first four months of this year, but further cuts are needed.
Dao Minh Tu, Deputy Governor of the State Bank of Vietnam (SBV), made the statement at the government's monthly press meeting on Friday.
He elaborated these cuts, including one in the first quarter and another in April, are part of the central bank's policy to aid businesses in line with its flexible monetary policy to tame inflation, stabilize the currency, and harmonize exchange and interest rates.
The central bank has urged banks to further cut interest rates in order to facilitate access to loans and boost credit growth, Tu added.
As a result of the interest rate reduction, average deposit interest rates are now 6-6.1%, while loan interest rates stand at 9-9.2%, according to Tu.
"Notably, state-controlled commercial banks have slashed interest rates by 1-1.5 percentage points for deposits and 1.5-2 percentage points for loans on average, the SBV leader said.
Vietcombank, one of the "Big 4", cut loan interest rates by 0.5 percentage points on May 1 until the end of July. Agribank has cut lending rates by 1-1.5 percentage points for packages of VND100 trillion ($4.26 billion) and $500 million from mid-March to end-June.
In February, MBBank announced a promotion of 1 percentage point cut for loan interest rates aimed at businesses with annual revenues below VND100 billion ($4.26 million).
Also at the press meeting, SBV Governor Nguyen Thi Hong said that by April 25, credit growth had reached only 2.75% compared to the end of last year.
The low capital absorption rate was due to low demand for capital from businesses given shrinking orders. Other firms had demand for loans but their poor health after the pandemic made them fail to meet lending conditions. Credit for the real estate sector only grew 3.51% due to legal barriers facing their projects.
Regarding the exchange rate and foreign currency market, Hong highlighted the SBV has purchased $6 billion in the year to date to pump money into the economy, resulting in a stable exchange rate.
To boost economic growth, Hong suggested the country should enhance domestic demand as Vietnam's GDP largely depends on exports while foreign market demand is unlikely to improve anytime soon as a result of continuing tightened global monetary policies.
Another recommendation was that credit growth, a driving force behind the economy, should be harmonious with the target of ensuring safety of the banking system, amid the collapse of some banks in the U.S.
She noted the collapse of Silicon Valley Bank and First Republic Bank was due to their investments in long-term assets that lost value amid higher interest rates.
"The lesson for Vietnam is that the economic growth should not over-rely on credit growth, especially long-term credit. Economic expansion should also be based on public investments and other sources," Hong added.