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Bank interest rates promote business operations   2009-01-24 - VOV


 The rates of interest on both bank loans and deposits are dropping in a positive sign for businesses.



However, many enterprises are still hesitant to take out loans as they’ve yet to make any decisions on investment or expansion. The situation gives rise to the possibility of more adjustments to both basic and commercial interest rates.

Apart from a sharp reduction in the rate of interest on new loans, old high-interest loans are also experiencing a remarkable decrease following the State Bank of Vietnam (SBV)’s instructions. The Bank for Agriculture and Rural Development (Agribank) has taken the lead in reducing interest rates as of January 1, 2009.

Accordingly, lending rates fell to 12.27 percent/year, lower than the ceiling level of 12.75 percent/year as regulated by the SBV. On short-term loans, the interest rate fell to only 0.9 percent/month, while the rate on medium and long-term loans remains at 1 percent/month.

With this reduction in interest rates, Agribank will suffer an estimated loss of around VND2,000 billion. Furthermore, the Bank for Investment and Development of Vietnam (BIDV) has cut its US-dollar rate on short-term loans to 6.5 percent/year. The rates of interest on medium and long-term loans are equivalent to that of 12-month loans plus a minimum fee of 3 percent/year.

The rates of Interest on deposits in the form of savings also saw a rapid decrease. The Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) reduced its six-month term loans in VND to 9.86 percent/year, while its deposit interest rate is down to 3.68 percent/year. Meanwhile, the Saigon Commercial Joint Stock Bank (Saigonbank) cut the deposit interest rate to 8.3 percent/year for one-month terms, 8.8 percent/year for six-month terms.

As a result, bank interest rate saw a sharp reduction compared to the third quarter of last year when the deposit interest rate climbed up to 19 percent/year and the lending rate reached up to 21 percent/year, excluding other fees.

Now the question is how will banks handle extremely large medium-term and short-term capital mobilizations at the previously high interest rates?

A case in point is the Southeast Asia Bank (SeABank), which steeply raised rates of interest on deposits in Vietnam Dong one year ago. At one point in 2005, the bank fixed its annual interest rate at 14.4 percent. Meanwhile, some of its customers deposited several VND billion in the long-term and now is the time for the bank to pay back the money.

Banks are now under pressure as they have to collect on their contracts with customers and reduce loan interest rates at the same time.

Enterprises are conducting operations and investing cautiously due to the high rates of lending interest on bank loans and continuing difficulties in the markets and the economy. Commodity sales have fallen short of projections.

Many companies and their trade associations have suggested a suspension of their debts so that businesses can further invest in new projects designed to restructure the market and production.

The State Bank of Vietnam has said it will gradually reduce the prime interest rate in light of practical concerns with the aim of assisting enterprises to borrow at lower rates, thereby helping to achieve the government’s goal of preventing an economic downturn.

Market analysts said that the prime interest rate is likely to fall to about seven percent per year. In that case, the annual ceiling rate offered by commercial banks will be 10.5 percent compared with the current figure of 12.75 percent.

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