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|Increasing numbers of businesses are struggling to find sufficient capital to expand|
On June 16, with Document 4605/NHNN-CSTT, the State Bank once again set alarm bells ringing for local lenders as mobilisation rates came under greater surveillance.
“Local banks must offer deposit rates not higher than 14 per cent, per year. Violators will suffer strict punishments,” said the State Bank.
According to Circular 02/2011/TT-NHNN dated March 3, 2011, the central bank set a 14 per cent per year cap on market deposit rates. However, over the past few months, local lenders still offered depositors interest rates higher than that level.
“Following deposit rate drops to 14 per cent per year, local lenders should gradually reduce lending rates to better assist local enterprises,” said the State Bank.
Vu Tu, general director at TienPhong Bank, said market interest rates may drop.
“Improved liquidity has seen interbank market rates drop. In the coming time, we can expect lending rates also fall,” said Tu.
The interbank market is where local lenders borrow short-term funds from each other and lower rates are normally signals of liquidity improvements.
By the end of last week, the interbank interest rates continued dropping with the overnight rate falling by 2.5 per cent per year week-on-week and one-week tenor rates were offered at 13.5 per cent per year.
Currently, the typical lending rate is between 22 to 24 per cent per year.
Over the first five months of the year, credit expansion pace has slowed. Trinh Van Tuan, Oriental Commercial Bank’s general director, said slow credit growth would encourage banks to lower mobilising rates.
According to State Bank data, by the end of May, credit expansion stood at 6.07 per cent against the end of 2010. In May alone, the total outstanding credit almost stayed the same with a 0.01 per cent increase month-on-month.
In May, local currency denominated credit shrank by 0.64 per cent month-on-month, the first drop for months.
However, according to Viet Capital Securities Company analysts, deposit rates and lending rates would not decline significantly in the near future as the government remains focused on stability versus growth.
“We may expect a continued decline in dong deposit rates and then followed a decline in lending rates in the near future,” a Viet Capital analyst said.
“However, we do not expect a significant decline in dong rates as the government is still targeting macro stability,” he added.
In the mid-term Consultative Group Meeting for Vietnam held in Ha Tinh province earlier this month, the State Bank’s deputy governor Nguyen Van Binh said that the authority would raise policy rates if inflation continued to remain high.