Small rate cut ripples set for market

For the third straight month, the State Bank late last week cut interest rates by a further 1 per cent. Accordingly, the ceiling deposit rate was pulled down from 12 to 11 per cent per year and other rates were also eased by 1 per cent, such as the refinancing rate to 12 per cent and the discount rate to 10 per cent, applicable from May 28.

This move did not surprise economist experts. Nguyen Tri Hieu said the cut was cautious and reasonable since inflation, albeit remarkably sliding, remained high.

State Bank figures show that in the first 15 days of applying the 15 per cent ceiling on lending to businesses in four set priority areas, lending rates to production and trading firms stayed  1-2.5 per cent higher and firms still have to borrow at 18-19 per cent, per year.

Hanoi Transport Corporation general director Nguyen Phi Thuong said the State Bank  should make public all outstanding loan reports of each bank to promote lower-cost lending as ‘banks’ recent announcement of lowering lending rates to 14-15 per cent, per year was unrealistic.’

“Tardiness in rate cut policy enforcement is a danger as it could deflate confidence. To bring the rate cuts into life, banks must ease lending requirements, while firms strive to come up to par,” said Cao Si Kiem, chairman of Vietnam Small and Medium Size Enterprises Association.

The chief executive of a Ho Chi Minh City joint stock bank said the bank would strictly adhere to the government’s rate cut commitment. “However, just 5 per cent of our customers can borrow at 14 per cent, per year,” said the executive.

Vietinbank’s deputy director Nghiem Xuan Thanh assumed bad debts were now more critical than the interest rates, as banks did not dare lend out unless their bad debts were redressed.

Thanh said the State Bank might establish a company trading in banks’ bad debts. Earlier, its Ho Chi Minh City branch office reportedly proposed the government give birth to credit institutions’ bad debt trading businesses.

According to National Financial and Monetary Policy Council chairman Vu Viet Ngoan, setting up a company trading in banks’ bad debts would be a viable solution since banks’ bad debts were so big it was impossible to just rely on the Ministry of Finance’s Debt and Asset Trading Company to tackle the issue.

Kiem supposed an inflation rate scenario at around 8 per cent per year, a mobilising rate at 9 per cent per year and a lending rate of below 12 per cent per year would be acceptable this year.