Vietnam Money-Dong rates down on banks' stronger liquidity

HANOI, Nov 23 - Interest rates on Vietnamese dong loans, which hit a 2009 high in the interbank market this month, have eased on the back of stronger dong funds, bankers said on Monday.

They said the fixings of interest rates on overnight dong loans were around 9.3-9.7 percent on Monday, down 50 basis points from last Friday when they reached as high as 10.2 percent, or just 30 basis points shy from the central bank's ceiling of 10.5 percent.

Earlier this month, interest rates on overnight dong loans were quoted at near 10.5 percent, the highest level this year, as banks faced a shortage of funds due to soaring demand for loans.

On Nov. 13, the State Bank of Vietnam ordered banks to stop applying "negotiable interest rates" on loans to "property and financial asset investments including gold, forex, stocks".

"The central bank's move to curb lending to property and financial investors really slowed lending down in the past week, hence the stronger dong liquidity in the system," a banker in Ho Chi Minh City said.

Negotiable interest rates are rates higher than the central bank's ceiling rates of 10.5 percent per year, and they were previously applicable to all consumer loans.

The central bank's order would force banks to lower rates for property and financial market investors, which stand at around 12-15 percent now, making it unprofitable to lend to the sectors.

The negotiable rate mechanism was originally introduced to keep interest rates low in the manufacturing sector while allowing rates for consumers to float.

The stock markets' strong recovery and steep rises in property prices in large cities such as Hanoi and Ho Chi Minh City have triggered overall credit growth in the first 10 months of more than 33 percent from the beginning of 2009.

On Monday the State Bank of Vietnam once again reminded banks to focus on lending to the "manufacturing and agricultural" sectors.

"Banks should limit lending to meet fund demand from the non-manufacturing sectors," the central bank said in a statement.

On the currency front, dealers said demand for dollars from importers was strengthening as they sought the greenback to pay for year-end import contracts.

At 0300 GMT the dollar was about 19,700 dong, up nearly 3.7 percent from a week ago on the unofficial market, dealers said. ((nhatlam.nguyen@thomsonreuters.com; +844 3825 9623; Reuters Messaging: nhatlam.nguyen.reuters.com@thomsonreuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))