Interest rates are set to head south

Scores of commercial banks are ready to take the lead in shaking things up

Vietnam’s consumer price index (CPI) for August was up only 0.93 per cent on-month, the lowest rise this year. August was also the first month the CPI rose under 1 per cent, signaling a slowdown in price rises as tightening monetary policies begin to bite.

Dinh The Hien, director with Institute for Applied Economics and Informatics Research, said that with August’s CPI, inflation expectations would cool. Forecasting the CPI to rise below 1 per cent a month, he expected CPI levels to still around 11.75-12 per cent in the next 12 months.

Banks’ liquidity has improved after the State Bank issued Circular 22, replacing circulars 13 and 19 on banks’ safety ratios, allowing banks to lend more with mobilised capital. 

Hien said with the current monetary policy, banks would be allowed to lend an additional VND190.4 trillion ($9.2 billion) in the last four months of this year, or VND47.6 trillion a month on average, up 100 per cent against early 2011. Total money supply M2 is estimated at VND59.5 trillion ($2.87 billion) a month in late 2011, or five times higher than early 2011, according State Bank of Vietnam.

“Therefore, I believe deposit rates will fall below 14 per cent annually and lending rates to below 18 per cent annually in late 2011,” Hien told reporters at a monetary market seminar in Hanoi last week. 

Nguyen Hung, VPBank’s general director, noted that a recent meeting between State Bank Governor Nguyen Van Binh and the top 12 bankers in Vietnam also pledged to reduce deposit rates to below 14 per cent annually and lending rates to below 18 per cent in late 2011.

“Accordingly, some commercial banks will immediately lower lending to certain groups of clients  and the rates depended on each bank,” said Hung, adding that Vietnam’s deposit rate was one of the highest in the world. Unofficial statistics show that Vietnamese enterprises in 2010 were borrowing at over 20-23 per cent annually, particularly 25 per cent for some enterprises. 

According to Hien, the return-on-equity (ROE) for listed firms was only 0.75 in the first quarter of 2011, compared to 13.13 in 2010 and 17.9 in 2009. Listed firms’ return-on-asset (ROA) also fell to 0.38 in the first quarter of this year, against 6.2 in 2010 and 7.8 in 2009, respectively.