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New ground of interest rates taking shape   2008-09-01 - TBKTVN, NLD

The State Bank of Vietnam is retaining the basic interest rate of 14% per annum, but it has raised the interest rate for compulsory reserve on deposits from 1.2% to 3.6%, which will help banks reduce capital mobilisation costs. It is expected that a new ground of interest rates will be set up.


Banks rushing to cut lending interest rates


Right after the State Bank of Vietnam announced the 14% per annum basic interest rate, Vietcombank announced 0.5-1% cuts on lending interest rates. The current allowed maximum lending interest rate is 21%, while the Bank for Investment and Development of Vietnam BIDV and Agribank are lending at 20% to normal clients, and at 18.2-19.2% to special clients. Techcombank is giving soft loans to enterprises that collect farm produce and import production materials. The interest rates of the soft loans are 0.5-1% lower than the rates applied to normal clients.


According to Pham Quang Thang, Deputy General Director of Techcombank, banks are cutting lending interest rates in order to help businesses cut production costs to overcome the current difficulties.


Nguyen Thanh Toai, Deputy General Director of Asia Commercial Bank, said that the bank is reconsidering loans, planning to drop lending interest rates to below 21% per annum.


Experts say that seven banks have announced lower lending interest rates, and they have reasons for that. One month ago, the central bank decided to raise the interest rate on the VND23tril worth of compulsory bonds by 5.2%. It has, once again, decided to raise the interest rate on compulsory reserve on deposits by 2.4% per annum, which will help reduce bank’s capital mobilisation costs by 0.2%.


Vo Van Chau, General Director of Orient Bank, said that the bank is considering slashing deposit interest rates by 1.2% this week. Pham Tuan Tu, General Director of PG Bank, said he is considering cutting deposit interest rates by 0.5%, which would lead to lending interest rate cuts.


As big banks are considering cutting interest rates, small banks will have to follow the move, or they will lose clients. However, experts say that small banks still have difficulties in accessing low cost capital sources, and they still have high average capital mobilisation costs.


Big banks, who hold big volumes of valuable papers, could use the papers to borrow money from the State Bank at the low interest rate of 15% per annum and then re-lend to other banks at 21% per annum. Moreover, they could access different capital sources, including from international institutions. Meanwhile, small banks rely on capital from the public with the high interest rate of 18.5% per annum.


SBV loosening monetary policies?


By maintaining the basic interest rate at 14% per annum, the State Bank of Vietnam is trying to say that it is pursuing tightened monetary policies. However, other adjustments made by the central bank show that it is loosening monetary policies, to some extent.


The decision by the central bank on retaining the interest rate at 14% and providing higher interest on compulsory reserves has been applauded by securities companies.


Thang Long Securities Company said that the central bank has made a wise move in the current conditions.


With the decision, the central bank will still be able to control the money supply, while banks will be able to slash lending interest rates when they can save on capital mobilisation costs.

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