Vietnam banks mull cutting interest rates

Vietnam banks are expected to trim down deposit interest rates to 11% p.a from 11.2% by October 15 as pledged with Vietnam Banks’ Associations (VNBA) in June, as long as the stubborn credit knots are unraveled.

Vietnam banks are expected to trim down deposit interest rates to 11% p.a from 11.2% by October 15 as pledged with Vietnam Banks’ Associations (VNBA) in June, as long as the stubborn credit knots are unraveled, the state-run online newspaper VnEconomy reported September 30, citing analysts.

Pham The Anh, an analyst from Thang Long securities pointed out two key solutions to help bring market interest rates down, adding that “ failure to cut interest rates likely hampers economic growth in the coming time”.

Anh pointed out that government bond issuances in the primary market should be further restricted after falling to VND900billion in August and September from VND10trillion in the middle of the year.

Anh also said that there should be a well-balanced position between dollar and dong interest rates, between the interbank interest rates and Government bond yields.

He cited that early 2010 saw an abnormal phenomenon where dollar interest rates (including the expected appreciation of dollar prices) ranged from 7% p.a to 8% p.a while dong lending interest rates were up to 15% p.a, giving borrowers more incentives to borrow dollars rather than the dong.

Anh also cited the wide spread between the Government bond yields of around 10% p.a and the inter-bank interest rates of mostly under 8% p.a as another imbalance in the current market, explaining that commercial banks often used the cheap funds raised through open market operation to buy the government bonds instead of lending them to the public.

“It’s necessary to ensure the rules of balance and restrict the monetary speculation. Banks’ liquidity should flow into the economy, not others”, Anh said.

Circular 13’s amendments in September 27 are likely to help cool down the stubborn high interest rates as the changes allow bankers more fundable capital to lend into the economy on year-end high demand season, said Duong Thu Huong, VNBA’s General Secretary. – Stoxplus.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates