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Bankers say they need more time to ease interest rates   2010-06-14 - Viet Nam News

The State Bank of Vietnam had a meeting with commercial banks at which the central bank once again repeated its request for deposit interest rates to be lowered to 10 percent per annum at maximum, adding that lending interest rates should be lowered to 12 percent.




According to Duong Thu Huong, Secretary General of the Vietnam Banking Association (VNBA), a survey conducted by the association showed interest rates have decreased further since the beginning of June.


Huong said lending interest rates applied to priority clients, such as export companies, clients in rural areas and small and medium enterprises, have been lowered by commercial banks. State owned banks are lending these priority clients at 12-12.5 percent per annum, while joint stock banks are lending at 13-13.5 percent per annum.


Speaking at the meeting with the central bank, representatives from commercial banks complained that it is very difficult to ease deposit interest rates right now, even though lending interest rates have been eased. The bankers said that if they are forced to lower the deposit interest rate to 10 percent as requested, they will not be able to mobilize capital.


Ly Xuan Hai, General Director of Asia Commercial Bank (ACB), said that with current deposit interest rates, the bank’s capital mobilization has not been going very well, while most depositors only make short term deposits. He also said many banks have to set up high deposit interest rates because their capital mobilization has been growing very slowly.


Commercial banks said it will take time to ease interest rates and that interest rate reduction should be carried out step-by-step, in order to avoid shocking banks.


Banks also pointed out that it would be impossible to ease bank interest rates if rates for government bonds remain high.


“How can banks ease interest rates if the interest rates of Government bonds remain sky high?” Huong, of VNBA, questioned.


Interest rates for government bonds have been decreasing, but remain very high. In March, two-year bonds were sold at interest rates of 12 percent per annum, while the rate reduced to 11.3 percent per annum in April and then bounced back to 11.05 percent per annum last week.

According to Trang Van Sanh, a banking expert, government bonds are low risk, meaning interest rates of government bonds, in principle, are equal to about 60 percent of bank deposit interest rates. This means that, in order to force the bank interest rate down to 10 percent per annum, the interest rates of government bonds should be less than nine percent per annum.

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