Further dong lending rate cuts expected

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Major banks in Vietnam have started cutting interest rates on loans in line with government policy to support growth, and further cuts are expected, bankers said on Monday.

State-run Agribank, Vietnam's largest lender by assets, said it had set its rate on short-term dong loans for farmers and export companies at 12.5 percent from July 1, well below the average 13.4 percent on domestic markets.

State-run BIDV and partly private VietinBank have also announced plans to cut their lending rates to 12 percent, and other banks were expected to join the drive, the government said in a statement issued late on Friday.

"Interest rates are forecast to decrease and stabilize, in line with macroeconomic balances," the statement quoted Nguyen Ngoc Bao, head of the central bank's Monetary Policy Department, as saying.

Money supply and lending in 2010 were forecast to expand 20-25 percent, in line with government projections, Bao said.

On June 6, Deputy Governor Nguyen Van Binh said the central bank would support lending by extending the maturity of loans the central bank gives to banks, following a government call on banks to bring deposit rates down to 10 percent and lending rates to 12 percent.

The government is targeting growth of 6.5 percent this year and between 7.0 and 7.5 percent for 2011.

Growth in the first half of 6.4 percent suggested the annual target could be attained, but credit needs to accelerate to provide support, economists said.

The Planning and Investment Ministry forecast last week that annual economic growth could reach 6.6-7.0 percent in the third quarter and 7.1-7.5 percent in the last three months of the year.

"With the easing of credit conditions and declining inflation supporting a return of flows into dong deposits, we think that the outlook has improved and that growth could gain pace going forward," ANZ said in a report.

Annual inflation dipped to 8.69 percent in June from 9.05 percent in May.

On Monday fixings for 12-month interbank dong lending rates eased slightly to 11.85 percent from 11.89 percent last Friday and overnight rates dropped to 6.66 percent from 6.69 percent, Reuters data showed.

Banks have agreed to pay a rate on dong deposits in a band 0.2 point either side of 11 percent, Vietnam Banks Association General Secretary Duong Thu Huong said in an interview published by Monday's Vietnam Economic Times.

"It will take more time to lower the deposit rate to 10 percent as requested by the Prime Minister; it is impossible to force banks to cut rates to 10 percent right now," Huong said.

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