Banks have liquidity to cut lending interest rates, but no demand: SBV

"The State Bank of Vietnam (SBV) will lower policy rates again if needed," its deputy governor, Dao Minh Tu, said at a meeting Tuesday.

"Otherwise banks themselves will strive to bring down loan interest rates by cutting costs."

The SBV has cut policy rates four times this year to bring down loan interest rates as it seeks to stimulate a sputtering economy.

But analysts said the biggest difficulty businesses are facing is the lack of demand, not cash.

Credit growth increased by only 4.7% in the first six months, half the rate seen in the same period last year.

Nguyen Thi Mui, a finance and monetary policy consultant to the government, said demand has plunged in both domestic and global markets.

She cited a recent survey by the Private Sector Development Committee and VnExpress which showed that 60% of businesses reported a decline in orders.

"Many businesses do not know what to do even if they get loans."

Trang Long, deputy CEO of state-owned lender BIDV, said the number of business proposals that meet his bank’s criteria is down from last year.

Nguyen Van Than, chairman of the Vietnam Association of Small and Medium Enterprise, said even if the interest rates are low businesses do not need loans when they do not have orders.

Vu Cong Huan, CEO of seafood importer and exporter HDC, said orders were down 25% year-on-year in the first six months.

Tu said banks could not lower lending criteria since that would lead to increased bad debts and affect the entire system.

Monetary policies are not a "magic wand" that solve every problem related to businesses, he said, adding that others such as increasing public spending and consumption are also needed.