Lending interest rates unlikely to go down till early 2012

The lending interest rates offered by commercial banks are still high and unlikely to go down until early next year despite the central bank’s effort to drag it down by enforcing the deposit rate cap at 14% since September 7, according to Saigon Times Daily.
Saigon Times Daily quoted a company director as saying that a bank offered him an annual lending rate of 22% for a short-term loan below one year and 21.7% for a middle and long-term loan.

He added that there was no lender offering him lending rates at 17%-19% per annum as suggested by the central bank despite a good relationship between his company and many large banks in the city.

A banker asserted it was hard to lend money with such a low rate given the current tight liquidity for Vietnam dong. He added several depositors were rushing to his bank to withdraw money every day, amounting to around 12 billion dong.

In reality, his credit institution has no appetite for seeking borrowers since the credit growth rate almost reached the credit growth cap of 20% set by the State Bank of Vietnam (SBV) for the time being.

An executive of a small bank admitted that only 5% of enterprises have accessed loans with a 19% rate yearly. This resulted from the imbalance between mobilization and lending activities.

Many industrial sources said that numerous credit institutions were mobilizing Vietnam dong at 15%-16% per annum, higher than the regulatory 14%, in an effort to make up for the shortage of liquidity. This means that the borrowing cost for companies would remain high in the coming months.

Meanwhile, SBV has recently raised the recapitalization rate to 15% a year from 14%, the overnight lending rate in the inter-bank market to 16% annually from 14%.

According to financial specialist Pham Do Chi, the move is aimed at decreasing money supply in the market to curb high inflation.

Also, Chi cited the phenomenon of many local investors turning to gold from dong deposits, whose rates were no longer attractive to them.

As a result, smaller banks find themselves in hot water with liquidity problems, meaning it is still too soon to revise down the lending rate, Chi stressed.

Truong Van Phuoc, general director of Vietnam Export Import Commercial Bank (Eximbank), asserted that lending rates would be gradually reduced only after lenders could pool low-cost capital.

Saigon Times Daily

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