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Vietnam Money - Loan rates fall on c.bank reserve move

Reuters - Tuesday, September 30

HANOI, Sept 29 - Vietnamese banks have slashed interest rates on dong loans by up to 1.8 percentage points to attract borrowers after the central bank said it would raise rates on banks' compulsory reserves, bankers said.

The central bank said last week it would raise the interest rate it pays on banks' compulsory reserves against their dong deposits for the second time this year, increasing it to 5 percent from Oct 1 from 3.6 percent now.

Bankers said their banks could also use compulsory bills worth a combined 20.3 trillion dong to secure loans from the central bank, thus raising availability of dong funds.

The central bank said on Monday all major banks including Agribank, Vietcombank and BIDV have cut rates on new dong loans to as low as 18 percent in the past week.

Agribank now charges interest rates of 18.2 percent on dong loans, down from 20 percent previously. Vietcombank, a key lender to exporters, has reduced the rates to exporter clients to 18.5 percent from 19.5 percent.

Vietinbank, Vietcombank and BIDV said they aimed to disburse a combined 16 trillion dong in dong loans to small-and-medium businesses in the short run, the central bank's Monetary Policy Deparment said.

"These banks can afford to lower their rates," an analyst at a foreign bank said on Monday. "But the bottom line is they would have to cut rates on deposits to keep lowering loan rates in the long run,"

Another banker said it would still be difficult for other banks, especially the smaller private banks, to lower annual loan rates to 18 percent if they have to pay around 17 to 17.5 percent in annual interest on dong deposits.

The central bank said in a weekly report the interest rates on medium and long-term dong loans still averaged 21.5 percent at small partly private banks in the last week.

On the interbank market, the four largest lenders including three state-run banks offered overnight lending at an average 12.8 percent, down from a range of 13.5-15 percent last week, suggesting ample dong funds.

The central bank wants to slow loan growth to 30 percent in 2008 from 54 percent in 2007 in the face of annual inflation that has been in double digits for 11 months in a row.

Annual economic growth in the Southeast Asian country was 6.52 percent in the first nine months of the year, similar to the pace seen in the first half-year, although a sharp slowdown from 8.5 percent in 2007.

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