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Apr 24, 2018 / 17:30

Lending rate reduction still far away despite good liquidity

It will take the banking industry difficult to make a lending interest rate cut this year though some factors, such as good liquidity, can support the move, experts forecast.

Banking expert Can Van Luc pointed out four reasons why the interest rate reduction is not simple in 2018.
 
The interest rate reduction is not simple in 2018
The interest rate reduction is not simple in 2018
First, he said, in line with the world trend, interest rates are rising in many countries such as the United States and European countries. This development comes after these countries ended the monetary easing period, and are currently tightening due to concerns about inflation.
Interest rate increasing trend is very clear. It is expected that the US dollar interest rate may increase 0.75-1 percent per year, which will of course boost the interest rates of US dollar and other foreign currencies, making it more difficult to lower interest rates.
Second, inflationary pressures in 2018 is higher than 2017 because of basic commodity prices, especially oil price, are expected to increase again. Since the beginning of this year, oil price has increased 7-8 percent. In addition, the Middle East crisis is more intense, causing oil price to climb.
Besides, Vietnam continues to raise the price of basic commodities such as power price to increase by 6.08 percent at the end of last year, basic salary to swell from July 1, and social insurance will keep going up. Some provinces will complete raising the price of medical services this year.
That is not to mention, the money supply to the economy last year as well as 2018 will be relatively large in all three channels including credit, private investment and foreign investment. Positive impact from the stock market will help the people spend more comfortably. The pressure of increased inflation makes it difficult to reduce both input and output interest rates.
Third, Vietnam’s input-output interest rate net difference is just at lower-middle level compared to the region, just 2.8-3 percent. This figure is about 3.5-4 percent in Indonesia, China, Malaysia and Singapore.
Fourth, the bad debt settlement process has been furthered, but will not be able to complete overnight.
“Too low bank interest rates will lead to the shift of money flows. I believe that stabilizing this year’s interest rates like year will be very good”, Luc said.
He added that one important point is that current interest rates are no longer a bottleneck for business system, as interest rates have reduced about 55 percent from the peak period. The credit growth of 18 percent in 2017 is a clear evidence for this.
In fact, the bottleneck of the business is lying in unofficial costs. According to information from VCCI, the survey result about PIC 2017 shows that the business environment is having dark points such as low transparency, legal institutions, bad dispute settlement system for businesses, unqualified human resource quality.
Banking expert Nguyen Tri Hieu said that medium and long term credit tend to increase gain in the first months of 2018, hindering the interest rate reduction. Specifically, medium and long term credit rose 4.3 percent in the first quarter of this year while short-term credit improved 2.6 percent.
“The banking system mainly mobilized short-term capital for long term loans, and the liquidity in long term is not available. The medium and long term capital sources cannot rely on the monetary market but on capital market. However, in fact, the capital source of Vietnam banking system has to meet demands for both medium and long term credit,” Hieu said.
If medium and long term credit increases, banks will not be able to ensure liquidity, and are forced to raise deposit rates. Therefore, opportunities to lower interest rates in 2018 are very difficult, he said.