Vietnam orders banks to cut lending rates as property market slows

Hanoi, Vietnam - The central bank has instructed commercial banks to lower lending rates for businesses, as high mortgage rates are contributing to the slowdown of the real estate market, a crucial factor in economic growth. On Sunday, the State Bank of Vietnam (SBV) directed lenders to reduce annual lending rates for priority sectors by 1.5 to 2.0 percentage points and to decrease listed deposit rates by at least 0.5 percentage points for savings accounts with terms of six months or longer. Banks were also prohibited from competing with each other by offering higher rates to savers.

The central bank cautioned that non-compliance with these rate reduction instructions could lead to stricter regulations and lower credit growth targets for the upcoming year. Additionally, lenders were ordered to allocate credit to productive and priority sectors, as well as significant projects, while strictly adhering to lending standards.

The measures were implemented to foster economic growth, stabilize the economy, control inflation, and protect the banking system. September's annual inflation rate reached 5.08%, surpassing the month prior's 4.89% and exceeding the government's 4.5% yearly target. Savills, a property advisory firm, reported a 26% decline in apartment sales in Hanoi's third quarter compared to the previous quarter and a 48% decrease from the previous year.

Secondary market prices also dropped for the third consecutive quarter. Ho Chi Minh City, Vietnam's largest city and commercial center, faced similar challenges, according to Savills. Do Thi Thu Hang, the director of Savills Hanoi Advisory Services, attributed the market's difficulties to rising mortgage rates.