VietNamNet Bridge - Easing the lending interest rate further by 0.5 percent and obtaining a high credit growth rate of 21-22 percent as instructed by the PM will not be an easy task.

The State Bank is pursuing a monetary loosening policy with more and more measures being taken to reach that goal. More and more conditions for banks to continuously slash interest rates have been created since early in the third quarter.

The liquidity increased after the central bank pumped more dong into circulation through buying more dollars to increase the forex reserves.

The overnight interest rate in the interbank market has fallen to a record low this year, while the government bond yield has also decreased, which both shows higher liquidity.

SBV in early July reduced a series of regulatory interest rates, a move that aims to pave the way for commercial banks to ease their lending interest rates.

In an effort to help commercial banks push up lending and stabilize the interest rates, the central bank is considering amending Circular 36, delaying the application of the regulation on using short-term mobilized capital for medium- and long-term lending for one year. 

In an effort to help commercial banks push up lending and stabilize the interest rates, the central bank is considering amending Circular 36, delaying the application of the regulation on using short-term mobilized capital for medium- and long-term lending for one year.

Since 2017, banks are allowed to use 50 percent of short-term capital for medium- and long-term lending instead of 60 percent. This is believed to be a major pressure on the interest rate. 

With the moves taken by SBV, commercial banks have more and more opportunities to slash interest rates. However, their reactions are not as expected by the regulatory body and their interest rate policies have not changed.

It seems that the central bank has become impatient and it has requested commercial banks to ease the interest rate by 0.5 percent in the time to come.

However, analysts commented that banks still follow a cautious interest rate policy. In order to slash lending interest rates while still maintaining the interest margin, banks will have to cut the deposit interest rates.

Meanwhile, the liquidity will be under pressure in the last months of the year as the fourth quarter is the time to withdraw capital to do business. Therefore, banks will still have to apply measures to attract depositors.

The government has requested to speed up the disbursement for public investment projects in the last months of the year. 

If so, the State Treasury’s deposits at banks will be decreasing in the upcoming time. To ensure liquidity, banks will have to mobilize more capital from the public and businesses to offset the decrease.

To obtain the 21-22 percent credit growth rate, banks will have to pump VND700 trillion into circulation in the last months of the year, or VND175 trillion a month.

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