Dec 25, 2012

Vietnam - Interest rates adjusted down

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The State Bank late last week cut  down its base and benchmark interest rates, allowing commercial banks to further slash lending rates this week.

Accordingly, the State Bank reduced the refinancing interest rate to 9 per cent from 10 per cent per annum, the overnight rate in the inter-bank electronic payment to 10 per cent from 11 per cent per year and the discount interest rate to 7 per cent from 8 per cent per year.

The maximum VND mobilising interest rate remains at 2 per cent per year for deposits of less than one month. The rate for one to below 12-month deposits was adjusted down to 8 per cent from 9 per cent per year. The rate for 12-month and beyond deposits will be set by market demand and supply.

The State Bank stipulated the maximum VND short-term lending rate of 12 per cent instead of 13 per cent per year to be charged by credit institutions and foreign bank branches. This rate is applied for borrowers of prioritized sectors including agricultural and rural areas, exports, supporting industries, small and medium enterprises, and hi-tech businesses. The State Bank’s move came as the inflation growth has slowed down, expected at around 7 per cent this year.

Earlier, anticipating that the State Bank would soon reduce key interest rates, many banks had already cut down their rates for more than one-year term deposits.

All large banks like Vietcombank, Vietinbank, BIDV, ACB, Eximbank and Sacombank, and smaller banks like GPBank, Bac A Bank, TienPhong Bank and Saigonbank last week adjusted their rates down by 0.5-1 per cent.

Many bankers and observers already forecast a reduction in interest rate previously as the liquidity of banking system, subject to high year-end withdrawal demand Tet spending, had remained stable.

The State Bank also kept pumping and attracting capital through open market operation (OMO) to support liquidity for banking system.

Based on a report released last week by Bao Viet Securities Company, during December 10-14, total capital outflow through OMO was VND2,090 billion ($100 million), with the net outflow of VND115 billion ($5.5 million), down VND221 billion ($10.6 million) compared to previous week, with mainly short term transactions.

“We believe that the liquidity of banking system in general was still stable. Currently, the interbank interest bank rate is trending upward, but this will happen for short term only as there are few banks facing liquidity issue at year end,” the report stated.

According to Nguyen Xuan Thanh, director of the Public Policy Programme at the Fulbright Economics Teaching Programme, based on the macroeconomic condition with the expected inflation of 5-6 per cent, the base rate can be even down to 7 per cent.

Le Xuan Nghia, former vice chairman of the National Financial Supervisory Committee, said December would be the critical time to reduce interest rate, as it would have huge impact on business for 2013 by stimulating consumption demand, encouraging investment and influencing business planning for 2013.

Trinh Trang |

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