At the beginning of the new year, the business community has received surprised news when a series of big banks announced to reduce interest rates. This practical support of the banking industry has brought a lot of excitement to many businesses when starting to carry out business plans in 2019.
The decision to reduce interest rates was officially adopted by four State-owned commercial banks pm 10th January like a New Year present to businesses. For each business, the interest rate reduction of 0.25-0.5 percent may not be too big, but with the bank, this is a “sacrifice”.
Currently, only four large banks, accounting for nearly half of the credit scale of the whole economy, of which outstanding loans for priority sectors account for 30-50 percent. This means that, with a reduction of only 0.5 percent per annum (p.a.) of interest rate for the priority sector, the banks has reduced hundreds and thousands of billions of profit.
Specifically, Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) estimates that it will reduce the profit by 700 billion dong, while for Vietnam Bank for Agriculture and Rural Development (Agribank), this figure will reach thousands of billion dongs, because the bank provide credit for many businesses in priority sectors.
In fact, many big banks themselves are having a headache when dealing with many internal problems such as handling bad debts, increasing capital. However, these banks are still willing to reduce interest rates, showing their strong commitment in the efforts to accompany and share difficulties with businesses, implementing the government’s policies for the common goal of supporting economic development.
It should be said that, in the last few years, banks have always done its role in accompanying businesses. This is partly due to the government’s direction to create a stable macro environment, and partly thanks to the commercial banks’ own strongly shifting.
Looking back at 2018, the global financial market changed dramatically, inflation and interest rates in many areas increased, the trend of monetary tightening took place in many countries. In that context, many countries had to raise interest rates sharply, pushing up inflation. However, in 2018, Vietnam’s financial and monetary market remained stable, interest rates were almost unchanged from the beginning of the year, the exchange rate was stable, and inflation was managed at 3.54 percent. Stability of monetary policy is one of the highlights of the economy, contributing to macroeconomic stability, creating confidence of domestic and foreign investors.
It was not a coincidence that in 2018 there were more than 131,200 new established businesses, not to mention tens of thousands of businesses returning to operation. The prime minister said that this was thanks to a significant contribution of bank credit. In the recent time, not only State-owned commercial banks, but also private banks have many moves to share the difficulties of businesses, and the economy.
In recent years, the monetary policy has been seriously implemented by the banking industry, the promise of interest rate stabilisation or interest rate reduction is respected by banks. This increases the trust of businesses and investors in monetary policy in particular and the macro environment in general. This is the basis for the belief in stable interest rates in 2019 to continue to be maintained, so that the economy will continue to develop sustainably.
For commercial banks, reducing the lending interest rate is one of the big challenges when implementing the profit target, but also a “test” to restructure revenue in the direction of reducing dependence on credit when State Bank increasingly tightens credit growth. This transition has taken place in some banks. For example, in 2018, Vietcombank, Agribank, etc. all achieved record profits, but not because of interest rate increase, while these are pioneering banks to reduce interest rates for businesses. The decrease in interest income is offset by increasing the number of customers, increasing service revenue, increasing collection from bad debts settlement, etc.
Prime minister Nguyen Xuan Phuc affirmed: “Each prosperous business, each strong and well developed bank will contribute to the prosperity of the country”. Perhaps, banks have understood that prosperous businesses and developed countries come together with developed banks. And perhaps, banks also understand that reducing interest rates to support businesses is not only their responsibility to the economy, but also a “long-term” strategy for a more sustainable development of the banking system.
