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Central bank chief expects banks to lend more   2008-11-07 - TN, Reuters

Vietnamese banks are expected to lend more to businesses as they have more funds available after the central bank reduced interest rates this week, central bank governor Nguyen Van Giau has said.



“The State Bank’s base rate cut will certainly make commercial banks increase lending,” his statement on the State Bank of Vietnam’s website said.

But he warned more lending “is not synonymous with loosening credit control procedures to create bad debts.”

He urged banks to make liquidity available but to avoid risks in an increasingly volatile global financial environment.

Following the central bank’s cut, most state-owned banks, the country’s main lenders, and commercial banks reduced their prime dong lending rates to 15-16 percent from 18-19 percent.

“Reaction from investors and commercial banks to the central bank’s recent monetary measures was very positive,” Giau said.

The central bank’s Monetary Policy Department reported last month that total available dong funds in the banking system have risen to VND50 trillion ($3 billion).

Banks expect to have more than VND20 trillion in additional funds this month after the cut in compulsory reserves.

SBV said this week that lending weakened in the first 10 months of the year after banks raised interest rates to as high as 21 percent under the central bank’s tightened monetary policy earlier this year to contain double-digit inflation.

January-October loan growth slowed to 19.6 percent from 37.73 percent last year. Deposit growth increased to 34 percent during the period from 31 percent last year, Giau said.

High borrowing costs have forced many businesses to suspend expansion plans.

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