Promised credit growth is becalmed in 2010

Local lenders are in the midst of a delicate juggling act

Last week, the State Bank said the government insisted on 25 per cent credit growth this year, indicating that more cash will be injected into the recovering economy in the coming months.

“The government’s target is to lower interest rates to support economic growth. The State Bank expects local lenders to cut deposit rates from 11 to 10 per cent per year and lending rates from 13 to 12 per cent per year within the next one or two months,” said Nguyen Van Binh, deputy governor of the State Bank.

Local banks’ total outstanding credits by the end of June expanded by 11.36 per cent from the end of 2009, while total deposits grew by 14.64 per cent, according to the latest State Bank data.

Credit growth is on track to reach a full-year target of 25 per cent fuelling the country’s efforts to secure an economic growth of 6.5 per cent in 2010. In the first half of 2009, credit and deposit growth hit 17.01 and 16.2 per cent respectively.

At the moment, local lenders are still cutting deposit rates step-by-step closer to 11 per cent per year. VietBank offers the highest interest rate at most terms at 11.2 per cent per year applied from July 13. Meanwhile, from July 9, Military Bank also set maximum deposit rates at 11.2 per cent per year.

Previously, larger banks such as Vietcombank, ACB or Maritime Bank have lowered deposit rates to 11.1-11.2 per cent per year. A Vietcombank official said that deposit rate cutting was a sensitive move and normally banks must do it in many small steps.

“If the depositors do not find lower interest rates attractive enough, they shift to other investment channels, then sometimes we have to raise deposit rates right back,” said the Vietcombank official.

Stock market brokerage firm VinaSecurities said that the process of lowering interest rates was time-consuming with at least three interest groups involved in each purpose.

“The first phase of agreeing to a deposit rate level at 11.2 per cent, per year was apparently achieved. Then the next phase will be arriving at a lending rate. We remain hopeful that this can be entirely resolved in a month or so. Then credit could begin flowing more freely into the economy and the stock market as well,” it said.