Stubborn lending rates

Based on State Bank figures, the loans lent at the rate of 15 per cent comprise 90 per cent of total outstanding loans until now, and the credit growth in the first 10 months this year is 3.3 per cent against the end of 2011.

Although 15 per cent is still a high capital cost for enterprises, some experts claim the State Bank should not loosen the monetary policies further.

According to Le Xuan Nghia, former vice chair of the National Financial Supervisory Committee, the pressure to reduce interest rate and widen credit growth was great in the near term. However, there is no room for the State Bank to reduce interest rates.

“The lowest monthly core inflation is 0.18 per cent, but it has climbed steadily to 0.85 and 1 per cent in recent months. Just loosening the monetary policy a little bit will destroy the effort to control inflation, which is highly appreciated by international financial institutions,” said Nghia.

To Ngoc Hung, director of a banking academy, agreed with Nghia. He also emphasised that the State Bank’s priority was to deal with non-performing loans (NPLs).

HSBC economist Trinh Nguyen, in a report released by the bank in November, also mentioned the relationship between inflation and interest rates.

Accordingly, inflation has been relatively tamed as of late, rising 7.0 per cent year on-year in October versus 6.5 per cent in September, much lower than the double-digit inflation in 2011. On a sequential basis, after a sharp rise due to one-off increases, month-on-month inflation slowed to 1.3 per cent from 2.1 per cent. Benign food inflation has helped ease some of the rises in fuel as well as other service costs, as food makes up around 40 per cent of the consumer price index (CPI) basket.

“With inflation expected to rise gradually until year-end, we do not expect further easing from the State Bank and expect the open-market-operation rate to stay steady at 8 per cent. If anything, rates should rise again next year,” said Nguyen.

In addition, experts also recommended that the State Bank should remove the deposit cap and leave it to be determined by  the market. This might cause the rate to soar for a short time before it stabilises.

According to banker Nguyen Thi Mui, during three months this year, the State Bank adjusted the interest rate five times, showing its inflation control measures were still situational. “This is a chance to remove the deposit rate, as in fact many banks are now violating the cap of not only domestic currency but also foreign ones,” Mui said.

“Some banks change from USD to Euro to offer customers higher deposit rate. With different capital and management capabilities, there cannot be a mutual cap for all banks,” she said.