Vietnam banks demur as yet another deposit rate cut looms

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A government advisory committee has said a further cut in deposit rates is possible in the current economic situation and will boost borrowing, something that earlier cuts failed to do.

The maximum rate can be reduced to 7 percent so that loans can be given at 10 percent, the National Financial Supervisory Commission (NFSC) said, pointing out that banking liquidity is stable and inflation is slowing.

It said the country has a "big chance" of keeping inflation at below 7 percent this year after consumer prices rose 2.55 percent in the first quarter, a period that normally accounts for nearly half the rise in prices during a year.

However, bankers have demurred, saying they are finding it difficult to mobilize deposits even at 9-10 percent and are unlikely to cut lending rates anytime soon.

The State Bank of Vietnam on March 26 lowered the maximum deposit rate to 7.5 percent from 8 percent, the first cut this year following six in 2012.

Meanwhile, banks have managed to attract few borrowers, leaving credit growth sluggish. Outstanding loans as of March 21 were up 0.03 percent this year.

Achieving the targeted credit growth of 12 percent this year would be a "big challenge," the NFSC said.

Dang Quynh Doan, director of women's apparel exporter Viet Thy, said a bank charging her company an interest rate of 13.7 percent on a loan has said it is likely to cut it to 12 percent.

She said she is unhappy about the huge deposit-lending gap that would remain in this case.

Vu Dinh Phuong, general director of the Vietnam Fan Joint Stock Company, said his company's bank loans carry 12 percent interest, but all are for the short term, since he does not dare to make long-term credit decisions.

"It is only when loan rates are lowered to below 10 percent that firms can afford to borrow," he said.

Some bankers said this would be difficult because they were already struggling to attract deposits at the current rates of 9-10 percent and were planning fresh promotions to attract would-be depositors.

Others said the prolonged economic slump was to blame for sluggish credit, with enterprises wary of taking loans.

Truong Van Phuoc, general director of leading bank Eximbank, said: "Deposit and loan rates have decreased rapidly in recent days but the problem is firms do not want to borrow."

His bank has reduced loan rates to 9-10 percent, but the situation has not changed, he said.


Economist Le Tham Duong said interest rate cuts no longer excite expectations for the economy.

"Why will firms borrow when demand is weak and the inventory remains high?" he asked.

The NFSC, realizing this, has also recommended that the government should take more measures to stimulate the economy.

It said Vietnam has to step up actions to reduce bad debts, which account for 6 percent of total loans and have stifled both lending and borrowing. Such actions would include the establishment of a government company to buy bad debts from commercial banks, a measure that the central bank has been considering, it said.

Tax regulators should consider cutting corporate tax to 20 percent from the current 25 percent to encourage businesses, it added.

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