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Basic interest rate unchanged at 14%
The State Bank of Vietnam has decided to keep the basic interest rate at 14% for October 2008. As such, though the CPI increase has been going down in the last few months and the national economy is better off, the government of Vietnam is still pursuing tightened monetary policies.
The fact that the central bank is keeping the basic interest rate at 14%, the same level as September and August, shows that it is still wary of high inflation.
However, in order to help commercial banks reduce capital mobilisation costs, thus reducing lending interest rates, the State Bank has decided to raise interest rates on compulsory reserves commercial banks deposit at the central bank. The new interest rate for the compulsory reserves will be 5% instead of 3.6% per annum.
The central bank has also allowed credit institutions to use bonds the central bank issued on March 17, 2008 as collateral to borrow money from the central bank to use for open market operations.
The move aims to help commercial banks expand their liquidity and increase the supply of capital for the market.
The move has been welcomed by commercial banks. Tran Bac Ha, Chairman of the Bank for Investment and Development of Vietnam, said that this is good support for banks.
In early September, banks slashed lending interest rates after the central bank offered higher interest rates for compulsory reserves. Therefore, businesses hope that the new move by the central bank will prompt commercial banks to cut lending interest rates further.
BIDV has immediately given an active response to the new decision by the central bank by announcing a fourth round of interest rate cuts in the last three months.
As of October 1, 2008, the VND lending interest rate will be 18.2% applied to all clients who have credit relations with the bank, a decrease of 1.8% per annum from the current rate. The 17.5% lending interest rate will be applied to clients which are big economic groups, general corporations and companies that make key products and play important roles in stabilising prices (petrol, steel, coal, cement, medicine, fertiliser).
Moreover, the bank has also announced an interest rate decrease of 1.3% from the current level of 18.8% for loans to fund exports.
Especially, BIDV is lending at 17.8% per annum to small- and medium-size enterprises. As for US$ loans, the lending interest rate will be 0.5% per annum lower, with the lowest rate of 6% per annum.
In a recent talk with the press, Associate Prof Dr Ngo Tri Long from the Finance Institute said that a lot of businesses are facing difficulties and they cannot pay debts, which also means that bad debt ratio is increasing.
Ha admitted that the bad debt ratio of the bank, which was 3.2% in late 2007, has risen to 3.6%.
Analysts say that banks have every reason to slash lending interest rates to help ease the burdens on businesses. They said that helping businesses is actually the banks helping themselves. If businesses die of overly high interest rates, banks will have no clients.
VNN
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