Vietnam - Worries about nominal interest rates raised

The lending interest rate at some banks showed signs of going down after the deposit interest rates fell. However, the matter of concern is whether these interest rates are real and it may further fall in the coming time.

Owing to the low capital absorption capacity of enterprises, deposit interest rates have gone down, resulting in reductions in business costs, therefore, banks have to further lower the lending interest rate to open up the output. Truong Van Phuoc, general director of Vietnam Export Import Commercial Joint Stock Bank (Eximbank-EIB) said that his bank will set aside of six trillion dong to lend at the preferential interest rate of 16.5% per year.

The bank's soft loans will be offered to exporters, small and medium sized enterprises (SMEs) and individuals to support production and business and low income earners who are in need of capital for house purchase.

According to Do Minh Toan, permanent deputy general director of Asia Commercial Joint Stock Bank (ACB), on April 11, ACB finalized its plan to reduce the average lending interest rate to 17.5-18% per year, which is expected to be effective from April 13.

HSBC Vietnam Bank also adjusted down the interest rates by 1% whereby its lending interest rate is now only 17% per year for long term loans to purchase house.

Although the interest rates continue to fall, many people said that the saving and lending interest rates some banks are announcing are not completely real interest rates. In fact, from March 13 (the date of applying the saving interest rate cap of 13% per year) to April 10, many depositors reached negotiation saving interest rates at 16% per year.

Meanwhile, the preferential lending interest rates of 14-16% per year were offered to a few prioritized borrowers but then these borrowers were requested to return 10-30% of the total amount of that loan or commit to sell foreign currency for the bank according to the negotiation prices.

Thus, the actual lending interest rate was up to 16-18% per year. Hence, many bank leaders admitted that both saving and lending interest rates of some banks still hide nominal element while the actual average deposit interest rate was 14-15% per year and the lending interest rate was 17-18% per year.

Analysts said that nearly past month, the State Bank of Vietnam (SBV) has adjusted the input interest rate twice, resulting in the current highest saving rate at 12% / year, suggesting that the central bank determined to lower the lending interest rate to 14% -15% / year (lending interest rate higher than deposit rate at about 3% is reasonable) to promote economic growth. However, many people said that this is very difficult to become a reality in the coming months because by the end of 2012 weak banks could be handled definitively and liquidity would become stable.

To further reduce the interest rates, some financial experts suggested the central bank to soon apply a special lending mechanism of state-owned banks and commercial banks to weak banks under the decision of the central bank for the loan limit with maximum loan term of two years. At the same time, the central bank should strictly deal with banks breaching the deposit rate of 12% per year. Thus, the input interest rate can be stable and then the lending rate would be at 14-15% in the next 2-3 months.

VietBiz24

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