Interest rate down by one percent, but VND remains attractive

VietNamNet Bridge – The decision by the State Bank of Vietnam to slash the ceiling deposit interest rate by one more percent is believed to make no upheaval to the monetary market. The local currency would still be attractive in the eyes of Vietnamese.

No one got surprised when hearing that the State Bank has slashed the ceiling deposit interest rate to 8 percent, though they did not think that the decision was released late last week.

In fact, the story about interest rate reductions has been discussed over the last many months. Responding to the call from businesses to ease lending interest rates to make it easier for them to access bank loans, the State Bank acknowledged that the current conditions facilitate the interest rate reductions.

Following the State Bank’s decision, commercial banks have immediately eased the lending interest rates, though the new decision only took effect on December 24.

Since the liquidity has been improved, banks do not complain about the interest rate reductions. It is now a growing tendency that banks ease lending interest rates to attract more borrowers. Not only big banks, which always have profuse capital, but small banks, which once met serious liquidity problem, have also eased interest rates to 11-12 percent, a decrease of 1.5 percent per annum in comparison with October, and 10 percent from the highest peak.

Some investment institutions believe that the interest rates have been set up based on the market demand, while the central bank’s decision to slash interest rate does not have much significance.

The investment institutions say they have every reason to believe that the interest rates would decrease further to 7-8 percent by the end of 2013. The inflation rate is believed to be low at 6-7 percent in 2013, which is an important factor for the banks to consider adjusting the interest rates.

State agencies and economists have predicted that the inflation rate would be some 7 percent this year. If so, the ceiling deposit interest rate of 8 percent would still be high enough to ensure the real positive profit for depositors. Especially, those, who deposit their money for more than 12 months, can enjoy the interest rates of up to 13 percent per annum.

Ha Xuan Lam, Director of a security equipment distribution company in Hanoi, said though the interest rate has decreased, the dong remains more attractive than foreign currencies.

“I’d rather deposit dong at the interest rate of 8 percent instead of pouring money into business and facing big difficulties as currently,” Lam said.

Commercial banks have confirmed that the lower interest rates would not affect their capital mobilization. The mobilized capital by the end of November had increased by 16 percent, which was triple the credit growth rate by the same time. Therefore, the interest rate reduction would in no way influence banks.

Especially, banks now even have capital in excess, because they find it very difficult to find borrowers and have to inject money in bonds. This explains why the bond market warmed up significantly in November.

Commenting about this, analysts say that buying bonds is the safest way for banks now to improve their business performance and balance the capital cost.

Deputy General Director of ACB Nguyen Thanh Toai also said that the bank eased interest rates before the central bank released the decision.

General Director of Sacombank, Phan Huy Khang, said the bank has slashed the long term deposit interest rate as well to 10.5 percent.

Lao Dong

Vietnam, interest rate, banks, loans, growth rate, economic crisis