Healthy competition in bank credit

Publicizing average lending interest rates will stimulate healthy credit demand. Photo: Q.VIET

Facilitate access to credit

In Official Dispatch No. 18 dated March 5 on credit growth management in 2024, Prime Minister Pham Minh Chinh requested the State Bank to direct credit institutions to publicly announce average lending interest rates.

Implementing the Government's policy, the State Bank has requested commercial banks to send links to the column announcing interest rates to the State Bank before April 1.

Mr. Pham Trong - Director of the State Bank of Vietnam, Quang Nam branch, said that the lending interest rates of credit institutions in the province have decreased but are not commensurate with the mobilization interest rates. Meanwhile, the negative credit in the first two months of 2024 compared to the end of 2023 is a huge obstacle to growth, and credit stimulus is needed.

Mr. Trong analyzed that the reason for negative credit growth was because businesses had made large investments at the end of the year, before Tet, and after Tet there were few orders, so businesses did not have a large demand for loans for production and business.

In addition to seasonality, the demand for loans decreased at the beginning of the year due to economic difficulties. Most notably, people and businesses had difficulty accessing capital, while interest rates remained high.

Requiring public disclosure of average lending interest rates is one of the solutions to help people and businesses easily choose banks to borrow from, stimulating credit growth. This is also a way to create open and healthy competition for credit institutions.

At the recent banking conference, Deputy Governor of the State Bank Dao Minh Tu affirmed that publicizing average lending interest rates is a “management discipline” that all banks must implement. The announced interest rate is the average, not the lending interest rate for each subject, business, or type.

According to Mr. Pham Trong, announcing the average lending interest rate is urgent to restore credit growth. Along with that, credit institutions need to shorten appraisal, approval, simplify documents and loan procedures for businesses and people in the province. Commercial banks need to be more decisive, avoid fear and excessive caution when making lending decisions.

“Bad debt certainly has a negative impact on credit quality. However, credit institutions can evaluate the effectiveness of production and business plans to lend. The most important thing is to push capital into the economy, increasing the ability to absorb capital for businesses and manufacturers,” said Mr. Trong.

According to the State Bank of Vietnam, Quang Nam branch, from April 1, the average lending rate of commercial banks will be announced on the State Bank's website to compare, check and control lending activities in the province, ensuring publicity, transparency and avoiding credit ambiguity.

Competition in the banking system

BIDV has just announced on the bank's website that the average lending interest rate in March is 6.49%/year. The difference between the average lending interest rate and the average capital mobilization interest rate is 3.12%/year.

TPBank also announced an average lending interest rate of 7.76%/year. The average lending interest rate for individual customers is 8.85%/year, and for corporate customers is 7.34%/year. The actual average interest rate difference at TPBank is 3.75%/year.

The concern at this time is how credit institutions will calculate the average lending interest rate? Calculating the average lending interest rate on newly arising outstanding loans in a period, in fact, in the past, some large banks have announced it, the State Bank relies on it to identify, evaluate, and predict interest rate fluctuations.

If calculated based on the total outstanding debt, this average lending interest rate will be affected by many factors, especially old debts with high interest rates in the past and the interest rate of bad debts calculated based on overdue interest rates, which is very high.

Commercial banks do not want to announce that the average lending interest rate is calculated to be much higher than the general level because it will affect their competitive advantage. It will be very rare for customers to choose to borrow from a bank that announces a high average lending interest rate.

Why are credit institutions not keen on announcing average lending interest rates? Credit institutions with small scale, high input capital costs, low equity capital, and limited access to funding sources will certainly announce very high average lending interest rates.

Therefore, it is very difficult to compete with the group of commercial banks with wide networks, good brands, and the ability to access cheap international trade finance sources....

Once the average lending interest rate is announced, the State Bank, people and businesses will be able to compare that interest rate with the deposit interest rate, which will lead to unpredictable reactions from customers...

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