Vietnam prods commercial banks to cut loan rates

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Vietnam's central bank said on Friday it would issue a directive to let banks extend short-term dong loans at negotiable interest rates in another move to relax lending.

The State Bank of Vietnam said in a statement it had asked banks to report on their current negotiable interest rates on dong loans in order to prepare for the step, following a government instruction aimed at cutting commercial lending rates.

A government directive on Tuesday said enterprises and individuals, especially those in the rural areas, the export sector and small and medium-sized companies, needed lower rates to expand business.

In February the central bank widened the scope of medium- and long-term bank loans that could be offered at negotiable interest rates.

Business executives say banks' current lending rates of 18-19 percent are still too high and the rates make it difficult for them to make a profit, unless they get a return of 25 percent.

Bankers agreed at a recent meeting chaired by the central bank they should first reduce lending rates to 14-15 percent before more gradual cuts and that state-run banks should lead the way, a government statement said on Thursday.

The central bank said state-run Agribank, BIDV and Mekong Housing Bank offered negotiable rates for medium- and long-term loans at 14-15 percent in the week ending April 1, while smaller joint stock banks offered rates of 15-17 percent.

Early this week the government told the central bank to keep its 2010 credit growth target unchanged at 25 percent to help the economy, but to cut money supply growth to around 20 percent from the 28 percent previously projected to help control inflation.

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