Vietnam money: rates ease on ample funds, bank competition

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Vietnamese dong lending rates softened over the past week as banks competed to lure borrowers and fund surpluses grew, bankers said.

On Monday, the overnight rate had dropped to 7.25 percent from 7.35 percent a week ago and the six-month rate had fallen to 11.85 percent from 11.98 percent, Reuters data on fixings of interbank offered rates showed.

Rates were also lower on loans from two weeks to three months, while nine-month and 12-month rates remained unchanged.

Ample funds at banks began stimulating lending this month, Monday's Tuoi Tre newspaper cited a central bank report as saying.

The newspaper, run by Ho Chi Minh City's branch of the Communist Youth League, quoted Asia Commercial Bank Chief Executive Ly Xuan Hai as saying Vietnam's fifth-largest lender by assets had a surplus of VND30 trillion ($1.57 billion).

He said ACB could offer competitive, negotiable rates for medium- and long-term loans at 15-16.5 percent, below the 17-18 percent rates available on the market but still beyond what bankers said businesses could afford.

In late February, the central bank widened the scope of bank loans that could be offered at negotiable interest rates to include areas such as production, business, services and investment for development.

Previously, all loan rates were capped at 1.5 times the central bank's benchmark base rate, which has been at 8 percent since the start of December.

Several bankers and economists have urged banking authorities to scrap the base rate to help banks expand loans and fuel economic growth.

Prime Minister Nguyen Tan Dung said the current interest rate policy was hindering business development.

"The interest rate must ensure that banks mobilize money and lend to enterprises more easily," Dung was quoted by the Monday edition of the official Vietnam Investment Review weekly as telling a business meeting last week in Hanoi.

He urged the central bank to collect business recommendations to change its rate policy, while continuing to ensure high inflation will not return, the weekly said.

The central bank should maintain a flexible policy on interest rates that is based on market mechanisms, economist Vu Dinh Anh, from the Finance Ministry-run Institute for Price and Market Science Studies, wrote in a note.

In 2010 the central bank should still "use the base rate as a decisive tool to control overall credit, the banking credit market and the interbank market", Anh said in the note published by the daily Nhan Dan on Monday.

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