Vietnam central bank lifts rate cap on short-term loans

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The State Bank of Vietnam on Wednesday issued guidelines allowing local lenders to set short-term lending on negotiable rates, a move that banks responded to immediately.

Central bank Governor Nguyen Van Giau told Thanh Nien that the move to allow negotiable rates will help achieve multiple goals. It would stabilize the monetary market, ensure funds for the economy, keep the banking system secure and lower rates.

The move is "timely" and "very good for the economy", he said.

The central bank had in February allowed commercial banks to charge negotiable rates on medium- and long-term loans. Interest rates are no longer subject to a cap of 1.5 times the central bank's base rate, which now stands at 8 percent.

Giau said most lenders now offer lending rates at 14 percent a year as they are aware that rates need to be lowered for the agricultural and export sectors.

Duong Thu Huong, general secretary of the Vietnam Bank Association, said commercial banks have agreed at a meeting on Wednesday that medium and long-term lending rates should not exceed 15 percent while short-term rates should be 14 percent or less.

She said rates would not be lowered abruptly in order to ensure benefits for banks, businesses and depositors alike.

How much banks cut their rates would also depend on inflation, Huong said, noting that they want inflation concerns to ease so that they can lower rates.

Right after the central bank's decision some commercial banks announced new rates on short-term loans. Ho Chi Minh City-based Sacombank, for instance, has set rates at between 13.8 percent and 15 percent depending on the clients.

Asia Commercial Bank on Wednesday announced new short-term lending rates of 14-14.5 percent a year. The bank now offers longer term loans at 15-15.5 percent a year.

Ly Xuan Hai, general director at Asia Commercial Bank, said it will take around one month to know if local businesses can afford the new rates, which he said are at the same level at the 2006-2007 period.

The bank this week said it is paying 11.6 percent a year on 12-month deposits. Huong from the bank association said this rate is reasonable considering lending rates of 14-15 percent.

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