Interest rates down, loans still 'unsold'

Interest rates on old and new loans decreased simultaneously.

Mr. Tran Thanh Phong, Director of Thien But Food Company, said that the current business situation is more positive than in previous months due to increased demand for food. Therefore, the company has recently renewed a 3-month loan contract with an interest rate of 6 - 6.5%/year depending on the bank.

Lending rates have fallen

Mr. Tran Thanh Phong commented that the bank offers low interest rates, in the context of difficult credit lending, but the approval process is also very strict. For customers with overdue debts, the loan application will be more difficult. This also applies to individual customers.

Mr. PH said that he recently sold a plot of land for about 3.5 billion VND, the buyer had 35% capital, the rest was borrowed from the bank. The customer mortgaged the land he bought, at this time the bank appraised the land value at about 3 billion VND, lending 70% of the appraised value, the loan interest rate was 8%/year fixed for the first 2 years, after this period the loan interest rate would be equal to the base interest rate plus a margin of 2%. "The most difficult thing for borrowers right now is proving income in the context of reduced salaries and difficult business," said Mr. PH.

As someone who has a debt of 2 billion VND at Vietcombank , Ms. Nguyen Thuy (living in Tan Binh District, Ho Chi Minh City) has had her loan interest rate reduced from 11%/year to 9%/year for 6 months by this bank over a month ago. This reduction helps Ms. Thuy save about 3 million VND in interest payments each month. However, for new loans, Vietcombank is applying a fixed interest rate of 7%/year for a long period of time.

"If the old loan can be reduced to 7%/year like the new loan, I will reduce the interest payment by more than 3.3 million VND/month. But because the agreement period has not yet reached the adjustment deadline, I have no choice but to transfer this debt to another bank," said Ms. Thuy, adding that she has consulted some banks that are applying new loan interest rates at 6.5 - 7%/year. However, the current problem is that Ms. Thuy's company has just reduced salaries by about 30%, so proving income to repay the debt is no longer convenient, so it is still being calculated.

Similarly, Ms. Thanh Ngoc (residing in Thu Duc City, Ho Chi Minh City) borrowed 1 billion VND from Vietcombank in July 2023 for a loan term of 5 years, with a fixed interest rate of 9.5%/year for 2 years, after which the interest rate will be calculated as floating. A month ago, Ms. Ngoc contacted the bank staff for support in reducing the interest rate, but received feedback that at the time she borrowed, the mobilization interest rate was high, so it could not be reduced. However, after finding out that banks allowed debt transfer from one bank to another, Ms. Ngoc proactively contacted the credit staff again with a request to reduce the interest rate. At this time, the bank agreed to reduce the interest rate for her to 7.5%/year. "Previously, I paid more than 7.9 million VND in interest each month, now it has been reduced to nearly 2 million VND, which is somewhat less pressure," said Ms. Ngoc.

It can be said that banks have never competed to reduce lending interest rates in the market like today. Large banks such as Agribank , Vietcombank, VietinBank and BIDV are applying interest rates for home loans in the first year from 6.5 - 8.5%/year. BIDV applies interest rates from 6.5%/year, Vietcombank from 6.7%/year, Agribank from 7%/year, VietinBank from 6.4%/year.

For the private joint stock bank group, the race to reduce loan interest rates is even stronger. After announcing a loan interest rate of 5.5%/year for the first 3 months of the loan, 7.5%/year fixed for 6 months, only 2 weeks later BVBank adjusted the loan interest rate down from 0.5 - 1%/year, down to 5%/year and 6.5%/year. VPBank lends 5.9%/year, loan term 25 years. ACB applies home loan interest rate of about 7 - 8%/year or fixed 9%/year for the first 2 years...

Foreign banks also joined in reducing lending rates. For example, Shinhan Bank applies a preferential interest rate of 6.6%/year fixed for the first 6 months, the maximum lending rate is 70% for a 30-year loan term; the fixed interest rate for 1 year is 6.8%/year, fixed for 2 years is 7.4%/year, 3 years is 8%/year. UOB is lending for home purchases at an interest rate of 6%/year...

Cheap capital but still unsaleable

Compared to a year ago, the lending interest rate market is completely opposite, banks are continuously reducing lending interest rates and looking for customers to disburse. The current preferential or old lending interest rate has been reduced by half. However, in the first 2 weeks of 2024, some banks said that credit growth is still not very positive compared to previous months. The lending situation is still quite slow due to the general impact from the last months of 2023 until now.

In addition, January is the low season for lending, businesses or individuals who borrow to make goods for Tet have already done so in previous months, so this month they often borrow less and mainly pay off debts. That is also the mentality of Asians, worried about paying off debts before Tet. Moreover, at this time, customers are also afraid of risks when purchasing power in the market has not increased yet. All of the above factors combined make credit growth in the first days of the year not increase as expected.

"The race to reduce lending rates is accelerating to find more customers. However, at this time, good customers are hard to find, so banks look at customers from other banks. Banks that offer high lending rates will lose good customers, so they have to reduce lending rates for both old and new customers. The competition for loans has never been as fierce as it is now," admitted the director of the personal customer segment of a joint stock bank.

According to this person's analysis, the market has seen some banks lending at 0% for the first months of the loan to attract customers, some banks even pay commissions to those who successfully introduce customers to borrow, at least 5 - 10 million VND/loan, and at most from 0.5 - 1.5% of the loan value. 0% lending interest means that banks must lose money for the first months of the loan. Because although 2/3 banks currently reduce savings interest rates to low levels, savings interest rates under 6 months are commonly at 2 - 3%/year, over 6 months from 4 - 5%/year, some banks mobilize over 12 months from 5 - 6%/year. To compete for loans, banks add a margin of about 2 - 4%/year (instead of 4 - 5% as before) to have a lending interest rate of 6%/year in the short term and 8 - 9%/year in the medium and long term. This is only the break-even point because the bank has to set aside risk reserves, deposit insurance, operating costs, etc.

Expert Nguyen Tri Hieu said that with a 0% interest rate, banks will certainly lose money in the first months. To compensate for these losses, banks will calculate higher interest rates after a "preferential" period, which is the average mobilization interest rate of some banks plus a margin that can be up to 5%, or compensate for losses with other service fees.

"Preferential loan interest rates are only applicable for the first 1 or 3 months, so customers need to pay attention to the regulations on how the interest rate will be after the preferential period ends. There is no such thing as a free lunch. Therefore, borrowers need to carefully review the regulations on how interest is calculated after the preferential period," Mr. Hieu advised and predicted that loan interest rates will continue to decrease in the first quarter when banks are in a state of capital stagnation, mobilizing but not lending. However, from mid-2024 onwards, mobilization and lending rates may increase as the economy's capital demand increases.

Some securities companies forecast that lending interest rates in 2024 may decrease by another 0.75 - 1.5% per year. Specifically, KB Securities Vietnam JSC (KBSV) forecasts that the average lending interest rate will have room to decrease by another 0.75 - 1%. VCBS Securities Company forecasts that the lending interest rate level may decrease by another 1 - 1.5 percentage points in 2024.

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