Vietnam - Consumption interest rate persists at 20pct annually

Despite the governor's statement about interest rate relaxing, affordable bank loans are still a far cry as consumption rate is still hovering between 18% and 22 percent per year this quarter 1 2012.

State-owned banks are believed to be of the most abundant capital thanks to larger mobilisation from residents and entities. However, only businesses could benefit from favourable interest rate of around 19% and consumption loans' rate is 1%-2% higher than that, according to a bank clerk of a bank's branch on Minh Khai Road.

Likewise, a bank credit clerk of a Hanoi-based commercial bank admitted that hardly any change in interest rates had been observed. Home loans are still hovering between 20% and 22% annually.

"Interest rates of loans of below one year has tumbled whereas soaring long-term rates are likely to ease soon, which could be beyond most customers' expectation", she said.

Many are reluctant to bear interest rate of above 20% for home loans. In fact, it is lucky to get bank loans in the light of currently flat property market.

If interest rates cool down, the market will pick up and so will prices, which mean the interest difference of 1%-2% could not make up for the price depreciation, she added.

What is puzzling for the time being is commercial banks' liquidity, according to Dr Nguyen Duc Thanh, director of the Vietnam Centre for Economics and Policy Research (VEPR). Despite new room for credit growth in 2012, liquidity problem has discouraged banks from loaning.

He reckoned interest rate relaxing not to meet expectations. In addition, weak dong liquidity in the recent times may trigger banks to sell US dollar for dong, which could then hurt foreign exchange rate.

Recent days have seen banks selling US dollar below ceiling price after bringing it to 21,036 dong/US$. Dong mobilisation, meanwhile, has been drastically carried out with a range of promotional programmes, valuable gifts and the like.

Similarly, former central bank's governor, Cao Sy Khiem presumed the absence of external factors' impacts on interest rates. It is commercial bank's liquidity that made interest rate reduction a tough task, he said.

Also, the potential merger between five and eight commercial bank indicated the central bank's determination to restructure the system. New credit limit will be available this March making banking industry healthier and bank loans accessible.

A Hanoi-based commercial bank's manager affirmed his bank's stable liquidity that would mean loan disbursement not too difficult. The post and pre-Tet holiday period has seen granted loans worth of tens of billion dong at this institution.

VietBiz24

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