The central bank last weekend reiterated its call for local lenders to cut interest rates, but the banks have averred that it is a task that would take a long time to complete.
The commercial banks said interest rates can only be lowered step by step, beginning with short term loans and deposits.
They also said government bond yields have to be lowered so that it will be easier for the banks to raise funds after cutting their deposit rates.
The government has asked the central bank to bring lending rates down to around 12 percent and deposit rates to 10 percent.
Duong Thu Huong, general secretary of the Vietnam Bank Association, said commercial banks have followed the request and tried to cut their rates. Most banks now offer loans at 13-14 percent, compared with 15 percent in April.
But Huong said it will be difficult to achieve the interest rate targets set by the government. "Bond yields are so high, so how can banks lower deposit rates?" she asked.
Experts said bond yields are now around 11 percent. If banks have to lower deposit rates to 10 percent, bond yields cannot be higher than 9 percent, they said.
Deposits vs bonds
Ly Xuan Hai, general director of the Asian Commercial Bank, said deposits have slowed down at many banks, so they did not want to lower their rates. Most clients were making just short term deposits, he added.
The research team at Hanoi-based Woori CBV Securities Corporation said on Tuesday that because of the instability of deposit rates, newly issued bonds with high yields are now attractive.
Banks set deposit rates in the range of 11-12 percent a year and "interest rates need a lag time to decrease a significant amount, maybe one or three months," the researchers said.
Ho Chi Minh City Securities Corporation said in a report last week that many banks were trying to improve their loan-to-deposit ratio and push it below 80 percent before the end of October to meet new central bank guidelines. "The problem, of course, is that this makes it difficult for banks to cut lending rates further," the company said.
So the State Bank of Vietnam may have to inject liquidity through open market operations to bring rates down again, it said.
Lending has risen 10.5 percent this year, and liquidity in the banking system has increased 9.6 percent, according to a statement released by the State Bank of Vietnam on Tuesday.
"Total liquidity and credit grew at a reasonable level, meeting capital demand in the economy, supporting economic growth and contributing to controlling inflation," the central bank said. The estimates for total outstanding loans were for the period "until June," it said, without specifying a date.
Vietnam is targeting growth of 6.5 percent this year, and the government has asked local banks to boost lending and support the economy. Gross domestic product expanded 5.3 percent last year, the slowest pace since 1999.
The local foreign-exchange market "has gradually become stable" with the dong's rate in the so-called black market gradually becoming closer to the official rate, which has "positively contributed to stabilizing the value of the dong," the central bank said.