Cbank cuts compulsory reserves for 5 lenders, boosts agricultural lending

Accordingly, the document will be applied to the Bank for Agriculture and Rural Development of Vietnam (Agribank), Lien Viet Post Bank, Mekong Housing Bank, Mekong Development Bank, and the Central People’s Credit Fund of Vietnam.

Agricultural lending from those lenders amounted to 40-70 per cent of Q4/2011’s total outstanding loans, according to the SBV.

The new compulsory reserve ratios, at 20 per cent of normal rates of all lending terms for other banks, will be applicable from now until the end of July this year.

The current rate for over 12-month terms is 1 per cent, while the rate for non-term and under 12-month terms at commercial banks is 3 per cent.

The rate applied for Agribank and the central People's Credit Fund is 1 per cent.

Agribank, the country's biggest bank in terms of assets, should extend 75-80 per cent of its total lending to agriculture, while other lenders should devote at least 20 per cent of their credit to the sector, said SBV’s governor Nguyen Van Binh.

Agricultural lending should be the banking system's top priority this year, he said.

Vietnam is among the world's top exporter of robusta coffee and the second largest rice exporter, after Thailand, with some 70-80 per cent of the 87 million strong of Vietnamese population live in rural areas.

The central bank has been applying compulsory reserve levels of up to 3 per cent for Vietnamese dong deposits, depending on the terms, in an effort to help control inflation, starting May last year.

Many experts then worried that it may cause a liquidity shock to banks as they were struggling hard to mobilize the dong to ensure liquidity, according to Sai Gon Tiep Thi newspaper.

Duong Thu Huong, Secretary General of the Vietnam Banking Association, (VNBA) told Sai Gon Tiep Thi that there are many monetary tools to control inflation, including the compulsory reserve ratio adjustment, but it was not advisable to use the tool then.

In late August, Le Xuan Nghia, vice head Nghia, deputy head of the National Financial Supervisory Committee, told Dau Tu newspaper that there was a surplus of VND37-38 trillion ($498.7 million) of idle capital at many commercial banks due to the implication of SBV’s adjusted compulsory reserves.

It could be the foundation for interest rate cuts in coming months, Nghia then said. But the current depositing rate is still at 14 per cent, while the lending rates hover at 18-20 per cent. 

The central bank has targeted total credit growth this year at between 15 and 17 per cent, compared with an expansion of 10.9 per cent in 2011.

The central bank has also asked the aforementioned credit institutions to make monthly reports to the Credit Department under SBV.