According to the State Bank of Vietnam, from July 15 to October 31, 2021, 16 banks cut interest rate for their clients totaling VND 15,559 billion, reaching 75.48% of the commitment. Four state-owned commercial banks accounted for up to VND 12,663 billion, or 81.4% of the total, compared to only VND3,000 billion, or 18.6% of 12 joint stock commercial banks.

Many businesses are disappointed with the move of private joint stock commercial banks, which cite a fear of a sharp drop in profits.

Among 16 banks that have pledged to reduce interest rates from July 15, LienVietPostBank says that if the average interest rate is reduced by 1%/year for existing and new loans by the end of 2021, the profit will decrease by about VND600 billion. Sacombank only reduced interest rates for customers worth VND 187 billion, saying that if the interest rate is reduced by 1%, the bank’s profit will fall by VND 1,000 billion.

Many private joint stock commercial banks have only slightly reduced interest rates, and paid little attention to supporting customers in difficult circumstances. Some banks have maintained their lending interest rates to businesses since late August 2020. Reducing lending interest rates is not a common policy and only applies to a few customers that can benefit the bank.

Surveys show that lending interest rates to corporate customers applied by some private joint stock commercial banks are still quite high, with 9%/year for 6-month term loans, 9.5%/year for 9-month term loans and 9.75%/year for 12-month term loans. However, after three months, it will be adjusted, adding a margin. The plus rate is from 1-3% for a 6-month term, from 1.25-2.25% for a 9-month term and from 1.5-2.5% for a 12-month term, depending on each customer. The lowest average interest rate for a 6-month loan is 9.5%/year.

Amid the complicated development of the Covid-19 pandemic, when many businesses have to stop operating, such interest rates are high. Meanwhile, the deposit interest rate until mid-2021 fell to a very low level, averaging only 4-5.5/year.

However, the business results report of the banking sector in the first nine months of 2021 showed great profits, despite difficulties caused by the epidemic. According to statistics of Maybank Kim Eng Vietnam Securities Company, in the first nine months of 2021, the pre-tax profit of the banking industry remained at a high level, reaching VND 132 trillion, completing an average of 77% of the profit plan for the year. Many private joint stock commercial banks recorded large profits, up to 10 times over the same period last year.

According to the State Bank of Vietnam, the balance of individual deposits has increased since the first quarter of 2020, along with the increase in the number of payment accounts that people open at banks.

By the end of the third quarter of this year, the total number of individual payment accounts exceeded 110 million. The increase in the number of open accounts is due to the Covid-19 epidemic, prompting people to use contactless payments.

Along with the increase in the number of payment accounts, the deposit balance at these accounts also reached a record level at the end of September, with VND 794,241 billion. On average, each citizen's bank account has about VND 7.16 million for payment purposes. Notably, deposits have very low interest rates, only 0.1-0.3%/year and banks are benefiting from this source.

For a long time, many businesses and industry associations, National Assembly deputies, etc. have proposed to sharply reduce lending interest rates to help businesses overcome difficulties caused by the pandemic. Although interest rates have fallen, businesses say that they are still high and they want them to fall to 5%/year.

National Assembly deputies from HCM City suggested that banks should not focus on profits but share difficulties with businesses and people by reducing interest rates to a meaningful level, and restructure loans. They said the State Bank of Vietnam should specify the interest rate reduction.

However, it appears that businesses cannot put their hopes on banks. Many businesses say that they have enjoyed interest rate reduction of 0.1-0.3%/year. For loans with interest rates of above 10%/year, a reduction rate of 1%/year is not helpful.

Waiting for cheap capital

According to a quick survey by the Vietnam Chamber of Commerce and Industry (VCCI) with more than 500 large enterprises in August 2021, the support package in terms of capital and credit that has been implemented since the beginning of 2020 has brought limited results.

Only 30.72% of businesses have had access to this package. Just 0.65% of them said this support package met their requirements; 25.49% said it only partially met and 4.6% said it met very little of their requirements. About the scope of impact of the package, nearly 21.6% of businesses commented that it was only moderate, 5.9% said it was low, and only 3.27% said that it had a high level of impact.

Pham Dinh Doan, Chairman of Phu Thai Group, said that businesses are facing difficulties in paying salary for workers, opening markets, inventory, etc. These difficulties are not due to weak management capacity. If there is no cash flow now, many businesses will have to close or go bankrupt. Therefore, it is necessary to support them with a "tonic", that is, cash.

James Villafuerte, chief economist of the Asian Development Bank (ADB), said that in the current situation, monetary policy is better than fiscal policy. As businesses suffer from revenue and profit reduction, tax reduction and exemption do not bring much effect. They need money and support to maintain operations. Therefore, in addition to fiscal policies such as tax and fee exemption and reduction, there should be direct support packages for businesses, such as loan packages with low interest rates.

Jay Roop, ADB's chief economist in Thailand, said that in Southeast Asia, Thailand has been the most affected by the Covid-19 epidemic. Similar to Vietnam, 98 percent of Thai enterprises are small and medium size, generating 40% of GDP annually. They are very vulnerable. Importantly, these businesses in Thailand still exist and have not collapsed during the pandemic, thanks to many measures taken by the Thai Government.

Specifically, the Thai government has provided a low-interest loan package of US$8 billion for small businesses. The Government and the Central Bank of Thailand jointly screen businesses that can participate in this program.

Businesses have the opportunity to access loans up to $1 million, with low interest rates of 5%/year for 5 years. In addition, businesses can delay debt payments.

Thailand's monetary policy-related solutions have brought good support to businesses. It is forecast that for the year of 2021, only about 0.3% of small and medium enterprises in Thailand will go bankrupt or be dissolved, Jay Roop said.

In Vietnam, according to the General Statistics Office, in the first 10 months of 2021, 93,000 enterprises withdrew from the market. A loan support package with a low interest rate and easy access has been discussed but is still not available, while the time is running out. The endurance of many businesses has reached the limit.

Tran Thuy

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