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Bank deposit interest rates climb back down as inflation eases   2008-09-25 - ThanhNien

A slowdown in the inflation rate this month has encouraged banks to reduce deposit interest rates.



Falling food and construction costs have helped ease the consumer price index (CPI) rise in September to the lowest level this year of 0.18 percent month-on-month, according to the General Statistics Office.

The month-on-month CPI was 1.56 percent in August and 3.91 percent in May.

Banks took the easing inflation as a cue to bring interest rates on dong deposits to below 18 percent.

VietA Bank cut its one- and two-week rates by 1.4 percent to 15.8 percent per year, and one- and two-month rates by 0.2 percent to respectively 17.8 percent and 17.9 percent.

Eximbank, or the Vietnam Import Export Bank, slashed rates for a second time in a week, cutting one- to four-month rates from 17.58 percent to 16.404-17.304 percent.

The Hanoi-based Vietnam Commercial Bank for Private Enterprises, known as VP Bank, cut the weekly rate from more than 15 percent to around 9.8-11.8 percent.

Many banks have also cut dollar interest rates. VietA Bank reduced one-month to one-year rates by 0.4 percent and the over-one-year rate by 0.3 percent. Saigon Commercial Bank cut one- to 13-month rates by 0.1-0.3 percent.

Analysts predicted it was just the beginning since many banks are yet to act.

A director of a Ho Chi Minh City-based commercial joint stock bank, who wished to remain unnamed, said banks accepted losses by paying high deposit interest rates to keep customers and so are now eager to cut interest rates since inflation is easing. A deposit interest rate of 17.5 percent and lending rate of 21 percent per year would allow his bank to break even, he revealed.

The directors of some commercial banks said they had asked the central bank to reduce the prime rate which determines the deposit and loan interest rates.

The State Bank of Vietnam raised the prime rate by 2 percent to 14 percent per year last June to tame galloping inflation.

Eximbank general director Truong Van Phuoc said the deposit rate in the upcoming months would continue to rely on the CPI. Banks would cut medium- and long-term deposit interest rates more than short-term since they expected inflation to slow down in the medium- to long-term, he said.

Thus, they are less willing to lower the rates for one- to three-month deposits, he said.

Some analysts predicted deposit rates would fall gradually so as not to shock depositors.

Banks are also becoming more eager to offer loans to domestic businesses. Asia Commercial Bank raised its credit quota for exporters to US$50 million from $20 million. The HCMC-based lender, which is the Hanoi stock exchange’s only listed bank, will also loan one third of VND15 trillion ($906 million) to enterprises and retail clients to expand business and buy houses.

Eximbank granted a VND3 trillion ($181 million) credit quota for exporters with a lending interest rate of 6.6 percent per year after disbursing around VND2 trillion in the last two months.

The Vietnam Chamber of Commerce and Industry (VCCI) on Tuesday called on banks to lower lending interest rates to ease a critical capital shortage facing the business sector.

With the average interest rate of Vietnamese commercial banks at 21 percent, 73 percent of the country’s enterprises say they do not have enough funds to maintain and expand their business, a VCCI survey found.

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