Deposit rate cap poised for another cut

However, he stated the deposit rate cap could only be lowered to 8 per cent, explaining that if it was slashed further, Vietnam dong would become less attractive and people would switch to other investment channels like gold and foreign currencies.

This would leave a great impact on exchange rates and the gold market, so interest rates will not drop sharply in the rest of the year, said Binh at the bank-business connection conference held in Ho Chi Minh City last Saturday.

He stressed if interest rates were cut drastically, the cash flow would run into speculative and inefficient sectors, then inflation might flare up again, and all efforts to remedy the issues in Vietnam from last year would come to nothing.

Representatives of many businesses and associations proposed the interest rates for new loans should be brought down to 10 per cent. In addition, quite a few enterprises had mortgaged their assets for the old loans, so they could not take out new ones

Binh said lending rates had gone down considerably against last year and businesses should wait for some more time.

Particularly, in September, 2011, the deposit rate ceiling was pulled down to 14 per cent, and now it stays at 9 per cent. Meanwhile, lending rates have fallen from 17-19 per cent last year to around 13 per cent at present.

The governor said the central bank had worked with the Ministry of Construction on disbursing funds for incomplete property projects. Still, property firms must lower their prices to deal with unsold products.

He highlighted the call for banks to reduce interest rates for old loans to less than 15 per cent is not an administrative decision. As such, there will be no punitive sanctions.

“Since credit contracts are economic contracts, administrative decision cannot change them. However, commercial banks should consider this as a political task for the sake of enterprises and the economy,” said Binh.

Representatives of several banks present at the conference such as DongA Bank, Eximbank, Vietcombank and BIDV said they had cut interest rates for old loans to below 15 per cent two weeks earlier. Moreover, the rates for new loans have reduced much, staying at around 14 per cent now.

Most banks have offered preferential packages with lending rates of only 10 per cent, but only financially-sound businesses can access such loans.

Nguyen Hoang Minh, deputy director of the central bank’s branch in Ho Chi Minh City , informed the majority of lenders in the city had adjusted the interest rates for new loan to less than 15 per cent per year. The outstanding loans with interest rates of below 15 per cent currently account for nearly 70 per cent of the total outstanding loans in the city.

The outstanding loans for the four priority groups have amounted over VND26.6 trillion. Credits grew 0.35 per cent in June, much more than the previous month.