The interbank and common market lending interest rate in October is continually capped at 21 per cent annually.

Businesses welcomed the SBV’s announcement amid recent speculation on whether the central bank would alter the prime rate.

Over the past few days, there have been positive economic indicators – the prime interest rate unexpectedly fell 1 per cent, inflation cooled and the country’s trade deficit dropped significantly.

The General Statistics Office reported that September’s trade deficit stood at US$500 million, the third consecutive month that it remained under $1 billion.

The value of the nation’s exports in the first nine months reached $48.6 billion, an increase of 39 per cent against the same period last year.

The consumer price index (CPI) in September rose just 0.18 per cent, the lowest monthly increase since the beginning of the year.

The Government’s efforts to stabilise the economy are aimed at sustaining growth, controlling inflation, increasing the attractiveness of dong-denominated deposits and improving the balance of payments. Part of the new strategy is to control credit and moderate demand while leaving interest rates at appropriate levels. However, the Government has been advised to keep the prime rate unchanged until there are signs that inflation will fall.

Lending rates cut

While insisting on tightened monetary policy and an unchanged prime rate of 14 per cent per annum, the State Bank of Viet Nam yesterday raised the deposit rate for compulsory reserves of credit institutions to 5 per cent from 3.6 per cent annually. (The compulsory reserve is the amount of money commercial banks are ordered to keep at the central bank as a hedge against a run on the banks).

The move is designed to make more capital available to commercial banks to increase liquidity and cut lending rates, Nguyen Ngoc Bao, director of the Monetary Policy Department of the SBV told Viet Nam News in a phone interview yesterday.

"In the latter part of each year, enterprises always need more capital. A cut in the lending rate will help enterprises access capital more easily and reduce capital costs," Cao Si Kiem, chairman of SME Association.

It should be remembered that late last month, the central bank tripled deposit interest rates for credit institutions’ compulsory reserves to 3.6 per cent from 1.2 per cent per year.

Since January, for dong accounts, the reserve ratio of commercial banks has been 11 per cent on both non-term deposit accounts and term deposits of less than 12 months. The ratio on deposits of more than 12 months is 5 per cent. For foreign currency deposits of less than 12 months, the ratio is also 11 per cent.

Several local bankers saw the increased interest rate for compulsory reserves as a positive move by the central bank.

Nguyen Hoa Binh, chairman of Vietcombank told Viet Nam News: "We will have more money to consider a further lending rate cut."

HaNoi-based Vietcombank yesterday announced a cut of 0.95 percentage points per annum on lending rates. The normal lending rate is 19.5 per cent, effective on October 1. Clients of Vietcombank are offered a favourable rate of 18.525 per cent as opposed to the current rate of 19.475 per cent.

Vietcombank also spared VND3 trillion ($180.61 million) for small and medium-sized enterprises at an unreleased interest rate.

At the same time, the Bank for Investment and Development of Viet Nam (BIDV), another State-owned bank in Ha Noi, announced it would reduce lending rates by 1.8 percentage points to 18.2 per cent per year starting next month for existing clients.

General corporations and economic groups and exporters of rice from the Cuu Long (Mekong) Delta area would be offered a rate of 17.5 per cent per year, down 1.3-1.5 percentage points from the current rate. SMEs are offered an annual rate of 17.8 per cent.

The Viet Nam Bank for Industry and Trade yesterday announced a cut of 0.7 percentage points on the normal annual lending rate of 19.5 per cent.

While State-owned banks have led the way in cutting rates, private banks are still eyeing one anther cautiously.

"We are thinking about cutting the lending rate, too," deputy general director of Asia Commercial Bank, Nguyen Thanh Toai, told Viet Nam News. 
Source:  VNS