Large banks in Vietnam are cutting operation costs in an attempt to lower lending interest rates, hoping they can drive other lenders to do the same thing.
State-owned Agribank, Vietnam's biggest lender by assets, last week reduced interest rates by 1-1.5 percentage points for all corporate clients. Exporters can now get short-term loans at 14.5 percent a year while the rates for other companies range between 15.5 and 17 percent.
According to the bank, the new interest rates will allow more companies to access loans so that they can ramp up production. Lending will be focused on the agricultural sector, it said.
Agribank Chairman Nguyen Ngoc Bao said the cuts were possible because the bank has reduced operation costs and is trying to collect bad debts from the real estate and stock market sectors.
"Lower lending rates mean lower profits, but we are also restructuring and minimizing costs," Bao said. Among the measures were reducing spending on advertisements and closing branches that were operating unprofitably, he added.
Three other major lenders BIDV, Vietinbank and Vietcombank have also lowered their rates to as low as 14.5 percent. This compares to interest rates of 18 to 25 percent seen last year.
A manager at Vietcombank said with deposit rates standing as high as 14 percent, cutting lending rates could translate into a sharp decline in profits. However, Vietcombank has a large source of funds coming from state-owned companies which allows the lender to offer low lending rates for businesses.
Bao of Agribank said his bank and the three other major lenders account for a combined 55-60 percent of credit in Vietnam, and their decision to cut interest rates can have a real impact on the whole market, forcing other banks to follow suit.
The four banks have been each assigned a credit growth limit of
17 percent, which is the highest level allowed by the central bank this year, he added.
However, Bao also said widespread rate cuts in the whole banking sector can only be expected when inflation falls sharply and deposit rates are reduced.
Bui Tan Tai, deputy general director of Asia Commercial Bank, said there is now a large gap of up to 9 percentage points between deposit and lending rates at many banks. It should be narrowed to only 3-3.5 percentage points, he said.
The problem is that not all banks are able to attract deposits at 14 percent and thus have to seek funds from the interbank market at 18 percent. As a result, their lending rates are still high, Tai said.
The State Bank of Vietnam said earlier this month that it will adjust policy interest rates to "more suitable" levels after the first quarter. Deposit rates are now capped at 14 percent.