Still impossible to slash interest rates, despite loosened regulation

Despite the amendment of the Circular 13 on required capital adequacy ratio, which was thought to be one of the main reasons behind the high interest rates, it is still very difficult to ease interest rates as instructed by the Government.

A lot of commercial banks have said they would keep the interest rates unchanged in the last months of the year, or they would only slightly lower the interest rates.

General Director of a joint stock bank in HCM City said the interest rates applied by his bank will not see any changes in the upcoming three months. The bank cannot ease lending interest rates, because the profit the bank gained in the first three quarters of the year were too low if compared with the targeted profit.

Regarding the deposit interest rates, he said it is not very likely that the bank will reduce the rates, because the currently applied interest rates do not allow the bank to mobilize much capital.

Meanwhile, deputy director of a bank branch in HCM City, thinks that the interest rates may be eased after the amendment of Circular 13, but the interest rate decreases will not be sharp.

Prior to that, in September, the Vietnam Banking Association called on its member banks to ease deposit and lending interest rates as per instruction by the Government. The Association has called on banks to reduce the deposit dong interest rate to 11 percent from 11.2 percent, beginning from October 15.

However, Duong Thu Huong, Secretary General of the Vietnam Banking Association, admitted that banks seem to be hesitant to respond to the call of the Association. They fear that if they reduce deposit interest rates, they will not be able to attract depositors, especially now when the banks need to mobilize as much capital as possible.

Huong said that the amendment of Circular 13, though being an important step, will not decide the interest rate decreases. She stressed that commercial banks set interest rates based on the inflation rates. Meanwhile, the inflation rate tends to increase in the last months of the year.

Experts have pointed out that the higher gold and dollar interest rates are also one of the important factors which make it impossible to reduce dong interest rates. Since the gold and dollar interest rates are attractive, depositors now tend to deposit gold and dollars at banks instead of dong. This explains why the volume of dong capital mobilized by banks remains “modest”.

According to the State Bank of Vietnam, the average short term lending interest rates applied by state-owned commercial banks to enterprises in agriculture and rural areas, export companies, and small and medium enterprises are 12-12.5 percent per annum, while the rates offered by joint stock banks are 12.5-13.5 percent per annum. Meanwhile, the interest rates applied to other sectors are between 13 percent and 15 percent per annum.

In the latest report to the Government, the central bank said that the interest rates still cannot be eased to the desired levels (10 percent for deposit interest rate, and 12 percent for lending interest rate), because the inflation rate tends to increase, while banks are still facing difficulties in mobilizing capital.-Thoi bao Kinh te Saigon

Tags: Vietnam banking industry, Vietnam Circular 13, Vietnam finance, Vietnam financial