State Bank cuts prime rate to lift liquidity

(21-11-2008)

HA NOI — The State Bank of Viet Nam trimmed its prime interest rate by a single percentage point to 11 per cent yesterday.

It was the central bank’s third rate cut in two months as part of an effort to free credit for enterprises and dampen the impact of the deepening global recession on Viet Nam’s economy.

In other measures effective from today, the bank:

Lowered the refinancing rate from 13 to 12 per cent;

Lowered the discount rate to 10 per cent and the overnight rate for electronic payments to 12 per cent; it also

Lowered the maximum interest lenders can charge borrowers from 18 to 16.5 per cent.

The bank also lowered by a substantial two percentage points the compulsory reserves banks must hold as part of the bid for greater liquidity.

Compulsory reserves now range from 2 per cent of total term deposits of more than 12 months to 8 per cent of total term, or non-term, deposits of less than 12 months.

Compulsory reserves for foreign-currency deposits were unchanged.

These range from 3 per cent for term deposits of 12 months, or more, to 9 per cent for other foreign-currency deposits.

The new rates were announced by State Bank governor Nguyen Van Giau who asked that creditors give priority to agriculture, manufacturing, exporters, importers of essential goods, small-and-medium-sized enterprises (SMEs), potential infrastructure projects and feasible real-estate development.

All State-owned commercial banks have reduced their interest rates by 1-2.5 percentage points in an immediate response to the central bank’s decision.

The reduction will put the most popular lending rates at about a yearly 12-13.5 per cent.

Viet Nam’s major partial private lender, Vietcombank, is offering priority customers money at 12 per cent, down 1.5 percentage points with the common lending rate lowered to a yearly 13.5 per cent – down 2.5 percentage points.

The Bank for Investment and Development of Viet Nam (BIDV) lowered its interest rate by one percentage point to 13 per cent for exporters, small-to-medium-sized enterprises and producers of essential goods such as fuel, steel, cement, fertiliser and medicine.

Its short-term loans attract interest of no more than 14 per cent and medium to long-term loans no more than 14.8 per cent.

Agribank reduced its interest rate by 1.5-2 per cent to 12 per cent for farmer households.

The rate for SMEs and exporters is 13 per cent.

Common lending rates ranged from a yearly 13.5 to 16.5 per cent.

The Hau Giang-based Lien Viet Bank private commercial bank will cut its interest rate by as much as 1-1.5 percentage points to 14.5-16.5 per cent from today.

Its general director Nguyen Duc Huong forecast the bank would cut its rate further in the next few weeks.

Private banks Asia Commercial Bank (ACB), Sacombank Techcombank, and VP Bank are expected to follow suit and must trim at 1.5 percentage points from their common rate to 16.5 per cent to avoid breaking the law.

The response

Enterprises have welcomed the lower interest rates, but executives complain that raising loans from domestic banks is still difficult.

Pleiku-based Thu Ha Coffee Company director NgoTan Giac said although the interest rate was no longer the concern it was, paperwork and borrowing procedures remained a hindrance.

"Even when a banks cuts its lending rates, we find it difficult to get raise new loans at the new rates," he said.

"I borrowed VND8 billion (US$471,142) at 16.5 per cent and after the first rate cuts, wanted to repay the loan before it matured so as obtain new credit at the lower interest," he said.

But the bank wouldn’t agree.

"If I had insisted on the repayment, I would not have been able to raise any more loans with them."

The director would not name the bank.

A Duc Viet Food Company official said it had borrowed from a State-owned bank at 16.98 per cent.

The bank had then refused to adjust the rate lower after it announced it had been reduced to 15.6 per cent.

The Government has now made changes to the interest rate, foreign exchange and tax policies in an effort to promote production and exports, and to ensure national financial security.

But some bankers predict the central bank could cut its prime rate to less than 10 per cent by year’s end.

Viet Nam’s economic growth has faltered as the global economic crisis reduces demand for exports.

The national growth target for 2008 has been lowered from 7 to 6.7 per cent while floods late last month destroyed crops and livestock. — VNS
Source: http://vietnamnews.vnanet.vn