Vietnam central bank requests more lending rate cuts

The State Bank of Vietnam (SBV) has asked banks in the country, both domestic and foreign, to further lower lending rates by expected 1.5-2 percentage points per annum to better support the country’s economic growth.

Such rate cuts should be for both outstanding and new loans, the central bank said, adding that Prime Minister Pham Minh Chinh has repeatedly required lending rates to go down to support both businesses and residents while the economy is growing slowly.

The SBV required banks to submit reports on their rate cutting commitment in 2023 for outstanding and new loans by August 25. Meanwhile, the deadline for reports on providing lowered rates is January 8, 2024.

Economic experts are of the view that current lending rates in Vietnam are still high, therefore businesses generally do not want to get bank loans. As a result, not much credit supply has been recorded.

"GDP growth at current prices is somewhere around 7%, while money supply growth is only 3%," economist Le Xuan Nghia told The Investor.

Assuming that current inflation is 4%, deposit rates should be 6% per annum or so, therefore lending rates should be around 8% per annum, he said.

At a dialogue between property developers and Prime Minister Pham Minh Chinh on August 3, Le Tu Minh, chairman of IMG Investment JSC, said: "It's time to cut medium-term lending rates below 10%. With rates higher than 10%, no economy can be healthy."

The SBV has cut policy interest rates four times this year, by 150 basis points to 4.5% for the refinancing rate. The latest took place on June 19.

These policy rate cuts prompted local commercial banks to lower their deposit and lending rates. Deposit rates on the country are down about 150 basis points year to date.

Vietnam’s economic growth was 3.72% in this year’s first half. The first quarter’s pace was 3.31% and the second delivered a 4.14% growth rate.