Cheap money is still flowing sluggishly.

Consumer loan interest rates have fallen.

From the beginning of the year, banks have accelerated programs to boost credit growth, specifically by reducing lending interest rates to their lowest levels in the past 20 years. Viet Capital Commercial Bank (BVBank) recently launched a loan package for purchasing and renovating houses and land, personal consumption, and supplementing capital for production and business, with interest rates starting from 5% per year. At the same time, the interest rate adjustment margin between fixed and floating rates has been reduced to only 2% per year. ShinhanBank reduced housing loan interest rates by 0.3 - 0.7% per year compared to Q4 2023. Borrowers can choose to borrow at a fixed interest rate of 6.8% per year for the first 12 months, 7.4% per year for the first 24 months, or 8% per year for 36 months…

Vietcombank reduces savings interest rates to 1.7% per year.

State-owned banks have also reduced lending interest rates by 1-1.5% compared to the end of last year. BIDV's lending interest rate is currently around 6.5%/year; VietinBank at 6.4%/year; Vietcombank at 6.7%/year fixed for the first 18 months, or 6.8%/year fixed for 2 years; Agribank at 7%/year with a preferential rate of 12-24 months... After the preferential period, the lending interest rate will be floating, calculated as the 12-month savings interest rate plus a margin of 3.5%.

Current interest rates for home and consumer loans in the market are slightly higher than deposit rates offered by banks, by 1-2% per year. Home loan interest rates range from 5-10.5% per year and are considered the lowest in the last 20 years. Leaders of several banks acknowledge that many preferential loan packages in the first few months are almost breaking even compared to deposit rates. Even so, loan disbursement remains difficult due to the low demand for real estate loans.

According to the Vietnam Banking Association, the State Bank of Vietnam assigned credit targets to banks at the beginning of the year to enable them to proactively provide credit to the economy . However, whether credit growth is achieved depends on the overall economy's ability to absorb capital. Specifically for consumer lending, current interest rates are at their lowest level ever, but banks and finance companies will still consider lending cautiously given the ongoing difficulties. Consumer loans account for approximately 21.2% of the total outstanding loans in the economy, around 2.5 trillion VND. In 2023, consumer lending growth was at its lowest level in five years.

In order to solve this problem, a solution is needed for banks to secure medium and long-term funding.

Financial expert, Dr. Nguyen Tri Hieu

Supply and demand for consumer loans have not yet met.

Interest rates are rarely this low, yet market liquidity is even lower. Economic difficulties, lack of repayment sources, concerns about interest rate adjustments, and worries that the real estate market will remain frozen are all making homebuyers hesitant.

Mr. Nguyen Trung (District 2, Ho Chi Minh City) is looking for a house near his company for convenience. Hearing that real estate prices have fallen, he's been taking advantage of the opportunity to search everywhere. However, after two months, Mr. Trung observes that there are many options available at this time due to low market liquidity. Nevertheless, property prices in some areas haven't decreased significantly.

"Recently, my family found a house in District 10 worth over 12 billion VND. If we buy this house, we'll need to borrow over 2 billion VND from the bank. According to the bank's staff, if we calculate the preferential interest rate at around 7% per year initially, the first few months' payments would be nearly 50 million VND, including both principal and interest. After the preferential period, the interest rate will be calculated based on the base interest rate plus a margin of 3-5%."

"This is what worries me most because at the end of 2022 and the beginning of 2023, deposit interest rates at banks skyrocketed, leading to lending rates also rising to 15-16% per year. Many customers are struggling because they can't afford to pay the interest. The preferential interest rates that banks offer to customers only last for a few months, up to 1-2 years at most, and then they become floating, so borrowers can't calculate what the rates will be like in the following years, especially for home loans with terms of 10-25 years," Trung explained.

This is also the feeling of many people. They want to borrow money but are afraid.

Financial expert, Dr. Nguyen Tri Hieu, also believes this is a problem in the Vietnamese market. Banks offer loans for 10, 20, or 30 years, but interest rates are only preferential for the first few months, then they become variable, and the risk of interest rates skyrocketing in the following period is very high, sometimes even doubling. At this point, borrowers have to pay quite high interest, making loan repayment a heavy burden on their lives. In the US, homebuyers can pay a fixed interest rate for 30 years or even longer. "Solutions are needed for banks to mobilize medium and long-term capital to solve this problem," Dr. Hieu said.

Mr. Nguyen Quoc Hung, Secretary General of the Vietnam Banking Association, believes that banks have excess capital and ample credit room, but consumer lending this year will face many difficulties. This is due to a lack of demand for loans. Previously, the real estate market had good liquidity, with many people buying and selling quickly to make a profit. If not sold, it could be rented out. However, the current situation has completely changed; the real estate market has low liquidity, renting is difficult, prices are falling… leading to low real estate transactions and consequently, a decrease in demand for loans.

"Now that banks have lowered interest rates, real estate companies should also consider how to make housing prices more reasonable. Furthermore, to stimulate consumer lending, people need to have income, while currently, people both domestically and globally are saving on expenses. Another reason is the high rate of non-performing loans, reaching 4%, so banks and finance companies are very cautious before deciding to lend. Lenders will also consider the customer's ability to repay before lending, rather than fearing an increase in bad debt. Debt recovery is difficult for banks, especially the phenomenon of people defaulting on consumer loans, which makes banks hesitant to lend," Mr. Hung stated, describing the current situation.

The reason why cheap capital remains unsold is because of these factors.

Savings interest rates have fallen.

Banks continued to lower savings interest rates in the early days of January, reaching their lowest levels in 20 years. On January 12th, Vietnam Foreign Trade Commercial Bank (VCB) further reduced deposit interest rates by 0.1-0.2% compared to before, bringing them to the lowest level in the market, at 1.7% per year. For 1-2 month terms, the bank's deposit interest rate decreased from 1.9% per year to 1.7% per year; the 3-month term also decreased by 0.2% to 2% per year; the 6-9 month term decreased from 3.2% per year to 3% per year; and the 12-month term is now at 4.7%.

Similarly, Viet A Bank also recently reduced interest rates for 1-5 month terms to 4.2%/year, 6-11 month terms to 5.2%/year, and 12-month terms to 5.5%/year. In the past two weeks, more than 10 banks have reduced deposit interest rates, and rates of 6%/year are almost non-existent. Despite the low savings interest rates, deposits continue to flow into banks. According to the State Bank of Vietnam, deposits into the banking system in 2023 reached their highest level ever, exceeding 13.5 million billion VND by the end of 2023, a 14% increase compared to 2022.

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