The Vietnam Central Bank has demanded that commercial banks lower deposit interest rates to ease the burden of corporate loan rates. Banks that do not comply with the interest rate cut directive may face reduced loan growth limits, prompting major state-owned commercial banks to announce plans to cut loan rates by up to 2 percentage points by the end of the year.
On October 18, the State Bank of Vietnam (SBV) instructed financial institutions to reduce the publicly announced interest rates on deposit products with maturities of six months or more by at least 0.5 percentage points. It also called for a reduction of 1.5 to 2 percentage points in loan rates applicable to production and business activities, as well as government priority sectors.
The central bank believes that the competition among banks to raise deposit interest rates could exacerbate instability in the financial market. Since late April, some banks have seen their highest publicly announced deposit rates rise to between 7.6% and 7.8% annually, with preferential rates reaching as high as 8.5% to 9.5% without specific high deposit conditions.
Loan Limits to Be Reviewed for Non-Compliance with Rate Cuts
The SBV warned that it would reassess loan growth limits for financial institutions that do not comply with the interest rate cut requirements. This could involve adjusting the remaining loan limits for this year or lowering the growth targets for next year, along with applying stricter soundness standards.
Major banks have also begun to lower loan rates. Nguyen Thanh Tung, Chairman of Vietcombank, announced on October 17 during a National Assembly discussion on the draft Law on Supporting Small and Medium Enterprises that the bank would reduce loan rates by at least 2 percentage points by year-end.
BIDV Bank also announced a program on October 18 to lower annual loan rates by up to 2 percentage points. This program, effective since October 15, focuses on short-term loans in Vietnamese dong for industries and sectors prioritized by the government.
The push for lower interest rates comes as businesses face increased financing burdens. According to the SBV, the average loan rate in August was 10.7%, up 0.2 percentage points from the previous month and approximately 3 percentage points higher than a year ago.
Addressing Financial Access Challenges for Small Businesses
The Vietnamese government is also working to enhance financial access for small and medium enterprises (SMEs) alongside the interest rate cuts. Vietcombank reports that about 98% of all businesses in Vietnam are SMEs, yet they account for only about 20% of total loan balances. Chairman Tung emphasized the need to focus policy resources on SMEs with high growth potential that can participate in large enterprise supply chains, rather than indiscriminately expanding support.
There have been calls in the National Assembly to improve the existing collateral-based loan assessment practices. National Assembly Chairman Tran Thanh Man pointed out on October 17 that the opaque financial statements and weak management capabilities of SMEs make it difficult for them to secure bank loans.
He stressed the need to shift to evaluating repayment capacity based on cash flow, transaction data, and delivery contracts, allowing funding to be provided based on actual business performance and repayment ability, even in the absence of sufficient collateral.
However, the central bank maintains that the expansion of loans must not increase the risk of defaults. It has instructed financial institutions not to relax loan assessment criteria and to rigorously manage bad debt and liquidity risks, as well as the concentration of loans to specific enterprises or sectors.
As Vietnam's banking sector begins to implement interest rate cuts, the challenge of reducing financial costs for businesses while maintaining bank soundness has become increasingly prominent. With the ongoing issues of insufficient financial information and reliance on collateral among SMEs, establishing a cash flow-based credit evaluation system remains a key task.
* This article has been translated by AI.
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