Banks expected to reduce interest rates

HCM CITY - Commercial banks are expected to lower interest rates on deposits and loans in compliance with the State Bank of Viet Nam's Circular 19, which took effect on October 1.

The circular, issued on September 27, amended content in Circular 13 on capital-adequacy

Tellers complete transactions at a Viet Nam International Bank (VIB)'s branch in Ha Noi.

ratios.

The major adjustment is the redefinition of deposits, which would ease the pressure on banks to mobilise funds.

Because deposits from the State Treasury are counted in the banks' mobilisation funds for lending, banks would be able to expand the number of deposits.

Commercial banks' demand deposits from the State Treasury this year were estimated at VND57 trillion (US$2.94 billion).

That amount is considered to be sufficient to use as a cheap source of capital, and to balance the high interest rates on mobilised capital.

The circular also allows banks to use 25 per cent of non-term deposits from enterprises as a source of funding for lending. It can be used because this source of non-term deposit is often stable at 20 per cent to 30 per cent.

Three months of loans from other credit institutions can be added to funds for lending, according to the circular.

Small banks will be able to more easily access cheap capital from larger banks, with the current interbank interest rate ranging from 8 to 9 per cent.

After the circular took effect on October 1, the market showed signs of lower interest rates.

For example, Dai A Bank has eased deposit rates by 0.14 per cent to 0.2 per cent per year.

Customers with deposits in Viet Nam dong for a one-month term and US dollars for one to two months would be entitled to get interest rates of 10.95 per cent per year, and 3.75 per cent per year, respectively.

Nam A Bank has announced a lending programme of up to VND1 trillion ($51.5 million) for small – and medium – sized enterprises'liquid capital at interest rates of 13 per cent for dong and 5 per cent for the US dollar.

Western Bank has lowered loan rates for small enterprises by 1 per cent, and transaction fees for the first three months by 30 per cent.

An Binh Bank has given priority to small enterprises by offering an annual 1 per cent rate lower.

Phuong Dong Bank has cut car loan rates by 0.5 per cent.

The Viet Nam Banks Association (VNBA) has recently proposed that commercial banks cut down highest deposit interest rate from 11.2 per cent per year to 11 per cent.

VNBA has also suggested that banks slash the demand deposit interest rate from the common rate of 4.8 per cent to ease business expenses, which would lower lending interest rates.

VNBA said that the deposit rate for US dollars at commercial banks, at 4.7 per cent to 5.2 per cent per year, is an emerging trend. The rates are currently very high in comparison to the international market.

Therefore, VNBA has urged commercial banks to reduce US-dollar deposit rates to create a balance with dong-deposit rates, creating conditions for dong interest rates to drop.

Le Tham Duong, head of the business administration department of HCM City University of Banking, said because the total outstanding loan growth had been quite low, banks were entering an output race that would lead to the fall of both deposit and loan interest rates in the near future.

Total trading volume in Vietnamese dong was VND65.93 trillion ($3.38 billion) during the final week last month, down 29.55 per cent against the previous week, according to a report issued by the State Bank of Viet Nam.

The dramatic decrease in interbank trading signals that liquidity at banks has improved after the central bank loosened capital regulations through the amendment of Circular 13 taking effect last Friday.

During the past two months, the trading volume hovered around VND90-100 trillion ($4.61-5.12 billion).

Average interbank trading increased slightly by 0.13-0.19 per cent for three month loans. Interbank trading has increased on average by 6.77-8.52 per cent per year. Interest rates for loans that exceed three months were down 0.06-0.48 per cent to about 10.12-10.55 per cent.

During the same period, total trading volume in the US dollar was also 15.37 per cent to $2.52 billion. Interest rates for the dollar loans were about 0.33-1.43 per cent per year.

As of September 27, credit growth in the banking industry was 19.27 per cent. Total loan allocation for property was VND218 trillion ($11.18 billion), up 18 per cent, loans for securities were up 19.8 per cent to reach VND15 trillion ($769.23 million), loans for consumers increased by 19.7 per cent to VND151 trillion ($7.74 billion).

Loans for agricultural and rural development and small and medium enterprises were up about 19-20 per cent.