Vietnam government orders lending rate cuts

The Vietnamese Government has required strong measures by the State Bank of Vietnam to bring down loan interest rates and assigned a credit growth target of 15% for the whole year.

In a Wednesday dispatch, Prime Minister Pham Minh Chinh noted that the world situation is complicated, with prolonged military conflicts in some regions; global economic recovery being slow, uneven and unstable; and natural disasters and climate change greatly affecting many countries.

“Domestically, business activities face many difficulties, especially heavy damage caused by storm No. 3, difficult access to credit and rising bad debts at banks,” says the dispatch.

In such contexts, the Prime Minister requested the central bank (SBV) to closely monitor the international situation and have timely and effective policy responses.

It also assigned a credit growth target at 15% for the whole year.

SBV data shows that credit growth as of October 31 had reached 10.08%, far exceeding the 7.4% one year earlier.

The SBV is required to execute solutions more effectively and strongly to bring down lending rates.

“Credit needs to focus on business sectors, priority areas, economic growth drivers, digital transformation, green transformation, response to climate change, circular economy, sharing economy, science, technology and innovation.

Banks also need to promote lending to meet the needs of production, business and consumption at the end of the year and the Lunar New Year.”

Capital injection into the economy must be practical with no congestion, delays, and wrongdoings, ensuring transparency, the Prime Minister stressed.

The SBV is also tasked to keep a close watch on credit granting and interest rate transparency of credit institutions and have timely solutions to handle system bad debts.

Upon the Prime Minister’s directions, the SBV has required banks to maintain a stable deposit interest rate level suitable to their capability and risk governance.

Banks need to simplify lending procedures and increase the application of information technology and digital transformation to bring down lending rates, it stated.

“Mobilization interest rates need to be kept at a reasonable level, contributing to stabilizing the monetary market and lending interest rates,” the central bank instructed.

According to SBV data, lending interest rates dropped by about 2.5% in 2023 and continued to go south in the first 10 months of 2024. As of October 20, rates had gone down by about 0.76% compared to the end of 2023.

Vietnam’s credit expansion has been nearly double deposit expansion, creating pressure on its banking system's liquidity as the year is coming to an end.

MBBank Securities (MBS) forecasts that the 12-month deposit interest rates at major banks will rise by about 20 basis points to 5.1-5.2% by the end of 2024. The hike not only ensures the banking system's liquidity but also meets businesses’ capital needs and facilitates credit growth in the final quarter of the year.

According to the General Statistics Office, as of September 27, capital mobilization by credit institutions increased by 4.79% from the year beginning and 6.63% year-on-year, while credit growth reached 8.53% as compared to about 6.24% in the same period last year.