Bank interest rates to see further decreases

Finance experts believe that there will be another basic interest rate decrease in the time to come which will pave the way for commercial lending interest rates to decrease further. The basic interest rate decrease is expected to occur in December 2008 or early 2009.

Despite the decreasing lending interest rates occurring after the basic interest rate decrease to 11% and the lower required compulsory reserves ratios, the disbursement by banks has still been going slowly. Experts say that the interest rates need to be slashed further to stimulate demand and pave the way for capital to flow into the national economy.

Associate Prof Dr Tran Hoang Ngan, Deputy Headmaster of the HCM City Economics University, said that the minus 0.76% CPI increase in November shows the heightened risk of deflation. Ngan said that it is therefore necessary to take prompt measures to stimulate domestic demand.

Ngan has suggested keeping a close watch over the monetary market and considering cutting the basic interest rate further.

Pham Quoc Thanh, Deputy General Director of ABBank, said that at this moment, when inflation has been curbed, Vietnam needs to pay more attention to boosting economic growth. And the solution is to slash lending interest rates, thus helping enterprises cut capital loan costs to reasonable levels. The interest rate cuts prove to be feasible at this moment, as banks’ liquidity and usable capital supply have improved.

The Bank of Investment and Development of Viet Nam (BIDV) set new interest rates on December 1, 2008 with the lowest at 11.4% per annum. However, BIDV Chairman Tran Bac Ha said that the bank would make other cuts in December.

Ha said that interest rate cuts prove to be necessary in order to encourage production and export, stimulate investment and consumption. BIDV’s expected credit growth rate in December is 3-3.5% over last month.

Tran Xuan Huy, General Director of Sacombank, which is now applying the lowest interest rate of 14% per annum, said that businesses still hesitate to contact banks for loans, though the demand for capital remains high.

Huy said that businesses do not want to sign credit contracts at this moment because they are waiting to see the trend lending interest rates will follow. Sacombank’s outstanding credit loans in November saw the modest increase of 5-7% over the beginning of the year; therefore, Huy said, an interest rate cut is indispensable.

Also according to Huy, central banks in the world have slashed their prime interest rates in order to stimulate domestic demand as exports have been influenced by the global financial crisis. Huy believes that the basic interest rate in Vietnam will also further decrease in the months to come.

Huy admitted that once interest rates go down, idle money flow into banks will become weaker. However, Huy said that interest rate cuts will help pave the way for capital to go to places where the capital is needed.

Huy said that the lending interest rate should be as low as 12-14% per annum to be fit for businesses.

Currently, capital is still stuck at commercial banks, as both banks and businesses still cannot find a common voice. Ngan from the HCM City Economics University said that the deposit interest rates should be lowered to the levels equal to that of 2006 (9-10.5% per annum on average) by early the next year, in order to help the national economy absorb capital. (DTCK)