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Interest rate decrease raises worries about credit increase   2011-06-27 - Viet Nam Net

The interest rate race has cooled down when big commercial banks have lowered the deposit interest rates by 1-2.5 percent. However, when the worry about the overly high interest rates has been left, a new worry has arisen that the credit would increase rapidly and uncontrollably.

The deposit interest rates have been decreasing over the last week. Previously, the clients who deposited more than 100 million dong, could enjoy the sky high interest rates and negotiated the interest rates they could enjoy with banks. Meanwhile, depositors now cannot impose their conditions on banks any longer.



Nguyen Thi Phuong, a depositor, said that she has 200 million dong in deposit at a bank which has the branch on Phan Dinh Phung in HCM City. One month ago, with the sum of money, she could get the interest rate of 17 percent per annum. Meanwhile, the bank just offers the interest rate of 14 percent.



“The bank officer told me that I can get higher interest rate only if I deposit more than 300 million dong. However, the interest rate would be 2 percent lower than the rate the bank offered some months ago,” Phuong said.



Other commercial banks have also eased the deposit interest rates. However, the actual interest rates are still higher than the allowed ceiling level of 14 percent per annum stipulated by the State Bank.



At some joint stock banks, the interest rates of 15-15.5 percent are applied to the deposits worth more than 150 million dong, which represents a 2.5 percent decrease from several weeks ago. Higher interest rates would be paid to the bigger deposit sums, but the interest rates would be no more than 17 percent.



“Previously, our bank offered the interest rates which were higher by 4.5 percent than the ceiling level, while the current excessive level has dropped to 3.5 percent,” a bank officer said.



“As for the huge deposits, the highest interest rate is 17.5 percent,” she added.



According to Dat Viet, the interest rate gap between the actual interest rates and the ceiling level of 14 percent has dropped from 5 percent to 2.5 percent.



Banks have also reduced interest rates on short term deposits. Dong A Bank, for example, only pays 13.5 percent per annum for one week of deposits, and 13.92 percent for two weeks deposits.



Bui Tan Tai, Deputy General Director of Asia Commercial Bank (ACB), said that the dong deposit interest rates have been on the decrease, predicting that the lending interest rates would decrease in the time to come.



Banks would live beyond their means?



Managers of some commercial banks said that since June 20, hearing the information about the decreasing deposit interest rates, many individual and institutional clients have come to ask for loans.



“Businesses are thirsty for capital and they will borrow money when interest rates go down. Therefore, I believe that when the interest rates decrease, the dong loans would grow rapidly,” a banker said.



However, when the worry about the overly high interest rates has been lifted, another worry has arisen that commercial banks would push up credit when the demand for loans increases. If so, it may happen that the credit growth rate in 2011 would exceed 20 percent, the ceiling level stipulated by the State Bank, which would lead to the high inflation boom by the end of the year.



Nguyen Van Dung, Deputy Director of the HCM City Branch of the State Bank, said that in principle, when the interest rates go down, the outstanding loans will go up. However, Dung said that the central bank has instructed to curb the credit growth rate at 20 percent. Therefore, though the lending interest rates ease, banks would not dare to push up credit.



“The lending interest rate decreases would bring more opportunities to the businesses which need capital, but would bring challenges to banks. Banks need to choose the best things for their development,” Dung said.



Also according to Dung, the deposit interest rates have been forced to decrease. The consumer price index (CPI) and the capital supply and demand of the national economy force banks to save expenses to ease interest rates and reduce inflation.



According to Tien phong, the lending interest rates applied to businesses are 19-20 percent (6-12 month term loans); the consumer loans at ACB and Eximbank have the interest rates of 21-22 percent. The interest rates have decreased by 0.5-1 percent over previously.



Vietinbank has announced the 20 trillion dong program under which it provides loans at the interest rate of 18 percent per annum to the enterprises in the fields which need support, such as garment, footwear and wooden furniture. Meanwhile, Maritime Bank has announced it would offer the 0.5 percent interest rate reduction for small and medium enterprises.



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