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Credit growth stalls as interest rates soar
Credit growth grew by just 0.11 per cent in April, as against the previous month, bringing the total growth in credit issued through the nation's commercial banking system during the first four months of the year to just over 5 per cent, the State Bank of Viet Nam announced this week.
In order to tighten up on liquidity and reduce inflationary pressures, the State Bank has targeted overall credit growth this year of no more than 20 per cent.
Interest rates charged for dong-denominated loans increased by an average of 1 percentage point over March, with average rates ranging between 14-17 per cent per year for manufacturing sectors and as high as 18-22 per cent per year for other, non-productive sectors. Some negotiated rates were reportedly as high as 25-27 per cent per year.
While borrowing cost for the dollar was 6.83 per cent per annum.
The country's broadest measure of the total money supply edged down 0.72 per cent month-on-month during April, yet was up 0.98 per cent from the end of 2010. Cash in circulation was estimated to rise 1.45 per cent over March and 4.12 per cent from December 31, 2010.
National Monetary Policy Advisory Council member Nguyen Thi Mui said, "Deposits at major commercial banks are sharply declining." Total Vietnamese dong deposit at commercial banks in April were down 1.84 per cent against the previous month.
Corporate deposits at Vietinbank, for example, fell by over 17 per cent between December and April, said a senior official of a State-owned commercial bank who asked to remain anonymous.
"Perhaps sources of capital in the economy are draining away, or the current interest rates are not attractive enough compared to the soaring inflation," she said.
The average interest rate being offered on dong deposits in the past month was unchanged at 13.4 per cent per year, although it remained widely rumoured that some commercial banks were trying to bypass the interest rate cap of 14 per cent to offer depositors effective rates of up to 17-18 per cent per year.
"It is of great concern when some banks illegally offer very high interest rates to attract capital away from other banks, setting off an interest war," commented the bank official.
Average interest rates for US dollar deposits were 2.66 per cent, down 2 per cent from March, while total dollar deposits were up 1.46 per cent.
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