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Banks trim rates on existing loans   2009-01-18 - VNS

Several commercial banks are reported to have slashed their short-term interest rates for existing contracts as they continue their bid to shepherd their commercial customers through economic difficulties.

The contracts most likely to be considered for a reduction are those signed when the yearly interest rate was at 20 per cent.

The number and size of the reductions have not been made public. But the Viet Nam News is reliably informed that the re-negotiated rates range from 6.5 per cent to 16.5 per cent.

There is no fixed criteria for adjusting the contracts.

But most have been applied to existing contracts with importers of steel ingot, fertiliser, cement and essential medicines forced to dip heavily into their stocks because of financial constrains.

Hard currency

Manufacturers of essential goods as well as small-to-medium sized enterprises with feasible and potential projects; sound investment projects and exporters who pledge to sell in "hard" currency have also benefited.

Privately-owned DongA Bank has just reduced its lending rate for this type of borrower to 16.5 per cent and plans to go to 15 per cent soon.

Priority customers will enjoy lower rates. Bank for Investment and Development of Viet Nam (BIDV) has already reduced its yearly interest rate from 8.5 to 6.5 per cent for several borrowers.

Vietinbank, Vietcombank, Sacombank, Techcombank, VP Bank, Asia Commercial Bank (ACB), VIB Bank are also reported to have snipped rates for some types of contract.

Sacombank general director Tran Xuan Huy said: "Enterprises had shared difficulties with banks by signing interest-rate swap contracts when lending rates rapidly increased.

"Now with lending rates falling, we should trim borrowing costs for these enterprises," he said.

ACB deputy general director Nguyen Thanh Toai said that the bank had thought about cutting its lending rates since the prime rate was reduced.

But the cut would not be as low as some expected.

"We had to pay dearly to mobilise capital so lending costs for contracts signed at that time could not be cheap," he said.

"Now, with contracts yet to mature, reducing the rates will require a great effort."

Other bankers agree that reducing borrowing costs would ease difficulties for the banks, but the cuts would have to be done incrementally or the banks might fail.

The Viet Nam Banks Association (VNBA) wants banks to reduce the rates for some contracts before they mature.

VNBA general secretary Duong Thu Huong suggests the rate cuts will spread throughout the market.

The association has asked the Government and National Assembly to make interest rates discretionary rather than maintain a compulsory cap or limit.

The request has the support of many banks and enterprises.

The prevailing law requires the interest-rate cap to equal 150 per cent of the prime rate.

With the prime rate now at 8.5 per cent, new loan contracts can be no higher than 12.75 per cent yearly.


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