III – Solutions
2. Reasons for that high interest rate
2.1. Reason 1 - Sustaining liquidity
Since the international financial crisis of 2008, the Vietnamese economy has been not only swept up by the current of global recession but also has struggled with its inherent perennial challenges. Hence, the health of baking system has worsened as well. High inventory levels are attributed to low credit growth and an increase in banks’ bad debts. Many commercial banks have reduced their interest rates after the State Bank of Vietnam (SBV) decided to cut lending rates in more than three years to help local businesses iron out snags in their current economic difficulties. By far, 15 of ...view middle of the document...
2.2. Reason 2 – For a stable funds
The first reason mentioned above has briefly answered the question why BacA bank offers such a high interest rate compared to other banks. The second one will explain why it is medium-term (6 months) interest rate but not short or long-term one.
In general, the challenge for the bank now is about the lending standstill which means the weak demand of borrowing. In fact, what businesses, which suffer the constant anxiety about the big inventories need is borrowing long term capital to scale up their business, whereas, the majority of funds is short-term from 1 to 3 months which leads to unstable structure of funds.
Depositors do not want to make long term deposits due to inflation fears. In addition, the operation of the interbank market was narrowed considerably, partly because of the regulatory restriction effective from September 1 stating that banks can transact on the interbank market only when they do not have overdue loans of 10 days or more, and...