In a resolution issued late last week, the Government set a target of lending interest rates of no higher than 12 per cent and deposit interest rates of no more than 10 per cent.

Credit grew by just 5.58 per cent between December and April, and just 1.73 per cent in April alone, against a formal target for the year of 25 per cent, causing the National Assembly Economic Committee to declare that tight monetary policies during the first four months of the year had discouraged enterprises from seeking bank credit, with negative impacts on production and economic growth.

US dollar-denominated loans grew by a slightly faster 3 per cent in April, according to the State Bank, with such loans carrying interest of an average of 6-8 per cent per year. The loans had also become more attractive due to a more stable exchange rate and the closure of the gap between dollar-dong exchange rates on the black market and those at commercial banks.

Meanwhile, central bank measures in March have helped commercial banks lower lending interest rates on dong-denominated loans from an average of 16 per cent per year down to 13-15 per cent, but many enterprises were still finding loans at such terms onerous.

"The cut in borrowing costs was hardly noticeable, going from 16.8 to 15.8 per cent," complained SunPack Co Ltd director Vu Huy Tien.

His company had been paying monthly interest costs totalling VND35 million on a VND2.5 billion (US$131,578) loan, and this had fallen to VND32.9 million per month, along with a bank asset management fee of VND100 million ($5,263) per month, or 4 per cent of the loan value, Tien said.

"Cutting lending interest by one percentage point only helps a little," agreed Xuan Thi Export and Import Co director Le Thi Xuan. "Paying the high interest costs is still nearly impossible."

Some companies also reported that banks were only granting loans at 14-15 per cent interest for the first three months, with interest rates to float higher in subsequent months.

To help alleviate the pressures on borrowers, the State-owned Bank for Investment and Development of Viet Nam (BIDV) and Lien Viet Bank have cut interest rates this month to 12.5-13 per cent, down 1.5 percentage points from last month, on loans to enterprises in the fields of agricultural production, fisheries, forestry, salt production, and exports, as well as to small- and medium-sized enterprises.

Vietinbank, Vietcombank and Agribank were also all reportedly preparing to further cut lending rates to comply with the call last week from the Viet Nam Banking Association for lending interest rates no higher than 13 per cent.

Total deposits at credit institutions, meanwhile, were up 2.8 per cent in April, compared to the previous month, with dong deposits up 3.3 per cent and dollar deposits up just 0.78 per cent, according to the central bank. Banks were offering an average of 11.5-11.9 per cent per year on dong deposits and just 3.3-4.8 per cent on dollar deposits.

Source: VietNamNet/Viet Nam News