Enterprises to face higher capital cost
– Interest rates, both borrowing and lending, are no longer leashed under new moves by the Government to contain inflation, which means enterprises will have to face higher capital costs and have to rethink their expansion schemes. The State Bank of Vietnam in a fresh signal to embrace the monetary tightening policy last Friday raised all key rates by one percentage point, this giving commercial banks to hike interest rates.
Under its new moves, the central bank hiked the prime rate in Vietnam dong to 9% per year for immediate effect after 11 months maintaining it at 8%, while the discount rate rises from 8% to 9%, the refinancing rate from 6% to 7%, and overnight rate from 8% to 9%. Commercial banks were previously told to keep their lending rates no higher than 150% of the prime rate, and given the new prime rate of 9%, banks are now given the green light to chase it up to 13.5% a year. Furthermore, banks have also been allowed to negotiate lending rates with certain customers, under which the ceiling rate does not apply, so the real lending rate may exceed 13.5%. Even the input cost for banks has also shot up, as the central bank has revised up all the key rates by one percentage point. In fact, banks said that the lending rates for short terms like one-, two-, and three-month loans on the inter-bank market have since early last week sharply increased to 12% per year. Several banks have swiftly responded to the central bank’s signals.
DongA Commercial Bank on Saturday decided to increase its deposit rate to 12% per year for terms from three months instead of the previous level of 11% per year. Western Commercial Bank on Saturday also raised its deposit rate to 12% per year for all terms plus bonus cash equivalent to the rate of between 0.7% and 3% per year depending on the deposit value. Nguyen Thi Kim Xuyen, deputy general director of DongA Commercial Bank, told the Daily that higher key rates meant that the monetary policy would be tightened in the future, and in effect would chase up borrowing and lending rates. On Friday, the State-owned Bank for Investment and Development of Vietnam (BIDV) also allowed its branches to raise deposit rates to around 12% per year.
The bank also raised its short-term lending rates by 25 basis points to 12.75% per year for privileged customers and 50 basis points to 14% per year for other clients. The lending rate for middle- and long-term loans will be equal to the 12-month deposit rate plus 3.5 percentage points, meaning the real rate may well exceed 15% a year. Other banks are expected to follow suit by raising borrowing and lending rates altogether early this week, otherwise they will see an exodus of their clients. Experts said that higher lending rates would usher in numerous difficulties for enterprises and some would have to reconsider the business expansion plans, and this situation could impact on the country’s growth in a foreseeable future.
Le Tham Duong, head of Business Faculty of the HCMC Banking University, said that every policy had two sides, positive and negative. “If the Government seeks to curb inflation as the first priority, it must accept lower growth in the future,” he explained. After the Government announced on Thursday to sell the U.S. dollar to banks to calm down the dollar fever, the dollar price on the unofficial market has cooled down a little from VND21,000 to VND20,550 on Friday. It then recovered to VND20,750-20,800 on Saturday and maintained there on Sunday.
