Updated  
February, 17 2014 08:27:31

Central bank wants lending interest rates cut

Compiled by Thien Ly

Soon after the Lunar New Year the governor of the State Bank of Viet Nam said the central bank would continue to tell banks to further cut interest rates on loans to businesses by 1-2 per cent.

But there are doubts about the feasibility of the rate cutting plan.

Last year the central bank adopted several policies to lower deposit interest rates and then ordered banks to reduce lending interest rates too. As a result, both rates were down by two-thirds from levels recorded in early 2012 and back to where they were in 2005 and 2006.

This year conditions in the financial market also seem conducive to further lowering the interest rates.

The central bank has fixed preferential rates for loans to five priority sectors, thus helping lower the average lending rate significantly.

Analysts warn that to achieve this year's credit growth target of 12-14 per cent, the banking sector needs to further cut interest rates by 1-2 per cent.

Banks need to accept certain losses by cutting their net interest margins (NIM) if they are to cut the rates, they point out.

But on the flip side the Government has fixed the inflation target for the year at 7 per cent, meaning banks cannot lower deposit interest rates to below that in order to cut lending interest rates.

They also face other hurdles to cutting rates. The bad debt problem has yet to be settled, and a circular set to take effect in June requires banks to make provisions against credit risks, increasing their costs and precluding rate cuts.

With the NIM reduced to 3 per cent already, many banks will find it very difficult to further slash interest rates.

All this means any rate cutting will mainly depend on the central bank's determination.

Govt wants VND30trillion

The Government has ordered the Ministry of Construction to quickly find ways to speed up disbursement of the VND30 trillion (US$1.42 billion) housing credit package this year.

The government-backed package was rolled out in June 2013 to enable low-income people to buy houses and stimulate demand to save the sinking real-estate market. It is also targeted at developers of social housing.

Five banks have been allowed to offer loans at 6 per cent interest for 10 years to low-income earners to buy apartments in social housing projects.

Those eligible to borrow are government workers and civil servants, military personnel, and workers.

But disbursement has been very slow due to several reasons.

According to the State Bank of Viet Nam, the banks have only lent VND758.7 billion ($359.56 million) of the VND30 trillion, or 2.5 per cent, including VND482 billion ($22.84 million) to individuals.

The 6 per cent rate – based on the inflation rate — is for the first three years after which it will move up or down with the prevailing inflation rate. Borrowers are therefore worried about rising inflation rate.

Besides, many potential borrowers are struggling to meet the strict requirements for lending and complete the tortuous procedures.

Many property firms have said they are unhappy with the conditions attached to the loans because it could take them several years to fulfill them and get approval.

Besides, the banks have the right to decide its customers and so during the process of approving the loans, the bank will prefer familiar to unfamiliar borrowers.

Of the VND30 trillion package, loans to business will only account for 30 per cent, or VND9 trillion ($426.54 million), a tiny amount compared to businesses' actual need.

As for individual borrowers, the lending conditions are too stringent that few can manage to fulfill them.

The 10-year term is also said to be too short and it has been suggested by the central bank's credit department that the period should be extended to 15 years to make repayment easier and, thus, give people the confidence to borrow in the first place.

Analysts say that while increasing the loan term will be a positive move, it will not have much impact.

Disbursement will only accelerate, providing an impetus for the real estate market to recover, when the interest rate is cut further, lending procedures are simplified, and projects eligible for the credit become more diverse to meet people's demand.

Fast food race speeds up

Many global fast-food brands are in a race to find good locations to open outlets in Viet Nam and to tie up franchise deals.

McDonald's, the world's largest fast-food chain, opened its first restaurant in Viet Nam in last week. A second is still under construction at a prime location in the downtown area.

Ice cream brand Dairy Queen made its debut earlier this year under a franchise deal with QSR Vietnam. The franchisee recently opened the first outlet in HCM City and plans to open 60 in the next five years, mainly in HCM City and some other big cities.

Dunkin's Donuts recently opened its second outlet in the city after its first in District 7. The company plans to open a third soon as part of its plans to open seven or eight outlets this year.

Domino's Pizza has opened in Tan Binh District.

Last year Burger King opened its 15th restaurant in Bien Hoa city in the southern province of Dong Nai shortly after Starbucks marked its sixth month in Viet Nam with an outlet in the city.

The latter's long-term plan is to open 100 outlets in the country.

Baskin-Robbins opened its first outlet in Ha Noi last year, its 15th in Viet Nam a year and a half after entering the country. It is preparing for the launch of many more in Da Nang, Hai Phong, Nha Trang, and Can Tho as it seeks to have 50 outlets by 2015.

Viet Nam is possibly the most promising market in Southeast Asia for fast food franchises and has much room for growth given the small number of such restaurants in a country with a population of 90 million.

According to industry insiders, the number of retail chains in the country is less than 100. On the other hand, Singapore has more than 4,000, Thailand, over 9,000 and Indonesia, 14,000.

The saturation in demand in established markets makes Viet Nam and other Asian countries irresistible for the big international fast-food chains. — VNS


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