The Saigon Times Weekly
Interest rates matter
High interest rates are considered one of the major factors strongly impacting the national economy, especially the real estate and bond markets.
The interest rates offered to homebuyers are quite high, and in some cases, they may even reach up to 14%. For a VND3-billion apartment, an individual must pay interest of up to VND35 million monthly or VND420 million per year. That seems unaffordable to many people.
Similarly, the bond market also recorded hikes in interest rates.
Corporations typically issue bonds to invest in long-term projects and often plan for the next issuance once the previous bonds mature. With the current interest rates, they must offer extremely high bond coupon rates to attract buyers. Those who hold old bonds issued when interest rates were lower have no choice but to accept a lower bond price in the secondary market. An economist once stated that no business could survive when lending interest rates reached 15-16% yearly. Under that circumstance, foreign-invested businesses with loans at much lower interest rates would encroach on domestic businesses. Meanwhile, citizens tend to keep their money in banks to earn a high interest rate instead of taking risks and investing in their businesses.
It is commonly known that the hikes in interest rates should be higher than inflation rates to compensate for the devaluation of the currency. Statistics from the General Statistics Office show that the CPI increased by 3.15% and inflation rates rose by 2.59% in 2022. Therefore, an interest rate of 5% could help stifle inflation rather than being as high as it is.
Given the current circumstance, banks should actively lower the lending interest rate to create favorable conditions for businesses to borrow. Although banks often find it difficult to do that when they have to pay high deposit interest rates, the sources of money for lending are not closely related to the mobilized capital in modern banking systems.
Instead, the perception of this connection is mainly due to banking regulations that ensure the stable operation of banks. Additionally, the banking system recorded over VND265 trillion in profit in 2022, with seven banks reaching a profit of over VND20 trillion, Vietcombank, Techcombank, BIDV, MB, VPBank, VietinBank and Agribank. With the huge revenue potential, those banks can proactively reduce interest rates to facilitate business access to capital.
Moreover, many businesses expect specific solutions from the Government to reduce lending interest rates. The State Bank of Vietnam (SBV) has called on commercial banks to set a maximum deposit interest rate to prevent others from raising it. More importantly, the SBV should create a healthy competitive market for everyone to join and earn money instead of just following small banks for high interest rates.