Vietnam rates down after central bank injections

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Cash injections by Vietnam's central bank helped push down lending rates over the past week, and bankers said on Monday they expect them to fall further in anticipation of a possible end to a cap on deposit rates.

Lending rates for medium- and long-term loans have come down to between 14 and 15 percent, Vietcombank's chief executive officer Nguyen Phuoc Thanh said. In recent weeks they had soared to around 20 percent at some banks.

Thanh said cash injections via open market operations by the central bank were not a long-term way to lower lending rates, but helped banks manage their liquidity.

"It was a kind of a supply of oxygen to help banks avoid shocks when they start lowering lending rates", said the executive from Vietnam's largest partly-private bank.

Most rates dropped gradually over the past week, with the two-week term falling to 8.58 percent on Monday from 8.83 percent a week ago. One-month and two-month lending rates slipped to 9.99 and 11.09 percent respectively, Reuters data on fixings of interbank offered rates showed.

Only overnight and one-week rates edged up to 7.06 and 7.83 percent on Monday, after falling over the past week to 6.75 and 7.64 percent on Friday, the lowest in 21 days.

Rates were down thanks in large part to a VND10.7 trillion injection of cash into the banking system by the State Bank of Vietnam two weeks ago, and another VND14 trillion injection in the past week, the online newspaper vneconomy.vn reported on Monday.

That liquidity made commercial banks reluctant to take out loans in the interbank market, a trader with a Japanese bank said.

"The interbank market will probably be quiet this week, and the market will depend significantly on open market operations," the trader said.

Vietcombank was offering medium- and long-term loans at 14 percent, Thanh told Reuters on Monday.

Enterprises may still find it hard to take out loans at the new rates of around 14-15 percent, but it could be a "stepping stone" for rates to come down further, Thanh said.

State lenders BIDV, Agribank, Mekong Housing Bank had also said they would lend at 14-14.5 percent, state-run online newspaper vneconomy.vn reported.

The central bank was working with the Justice Ministry to draft rules to allow banks to offer short-term loans at negotiable rates. It was also considering removing the deposit ceiling, now at 10.5 percent, and some bankers said they thought it would likely happen in April.

"When the deposit cap is removed, more cash will come into the banking system, enabling banks to manage their liquidity and lower rates," Thanh said.

Others doubted the new regulation would be in place so soon.

"With much paperwork related to other authorities, such as the Ministry of Justice, I think market interest rate liberalization will come after discussions at the National Assembly in May", the state-run Vietnam Investment Review reported quoted an unidentified BIDV official as saying.

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