Vietnam to relax bank lending rules to boost loans

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Vietnam's central bank said it would let commercial banks lend money from a wider array of sources as of Oct. 1 to assuage concerns that new regulations would dampen lending and possibly hurt the economy.

However, a senior government adviser said the measures did not go far enough.

Bankers had voiced concern about the original rules, arguing they would hinder their ability to boost credit and lower interest rates. In response, and under pressure from the government, the central bank issued amendments late on Monday.

These allow banks to lend up to 25 percent of non-term deposits raised from economic institutions instead of keeping them as reserves. Banks can also lend money they have borrowed from the interbank market for terms of three months or longer.

A central feature of the new rules raising banks' capital adequacy ratio to 9 percent from 8 percent remained unchanged.

The benchmark Vietnam Index gained 1.1 percent on the news, but share traders remained wary. Many analysts had flagged the original set of rules as a potential damper on the market and economy, and had hoped for bigger changes.

"The market is unlikely to see a big rally because traders are still cautious and they will look at how commercial banks react to the new circular in the near term," said Doan Tran Phuong Phi, a broker at Ho Chi Minh City Securities.

Le Xuan Nghia, deputy director of the National Financial Supervisory Commission, said the amendments would not really help banks expand credit or cut interest rates. "The changes are not large enough to boost lending," he said.

Central bank Governor Nguyen Van Giau has defended the original rules, saying they would make the banking sector safer. He also warned even stricter rules would take effect from January because of amendments to the law on credit institutions.

Earlier this year the central bank asked banks to restrict their interbank borrowing to less than 20 percent of deposits.

Dong lending rates range from 13 percent to 15.5 percent, although the government wants them cut to 12 percent. Banks promised in May to get nearer that level by the end of September.

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