As inflation slows and liquidity improves, the high dong deposit rates offered by commercial banks could fall slightly in the coming months, Nguyen Thi Mui, a member of the National Advisory Council for Financial and Monetary Policies, tells Thanh Nien Weekly.
Thanh Nien Weekly: Firms say that interest rates are too high now at 22-25 percent. Is it possible to reduce them now?
Nguyen Thi Mui: There are many signs that interest rates could be lowered. Inflation shows signs of reducing, so there is no reason for interest rates not going down as well. However, how big or small the reduction will be depends on many other factors.
Inflation rose by just 1.09 percent in June over May. Many commercial banks have said they no longer have much room for credit growth, which is targeted at 20 percent for 2011. Meanwhile, their capital sourcing has improved, facilitating lending at lower interest rates.
Another sign is that interest rates in the interbank market have decreased to 12-13 percent over the past few weeks.
In addition, the State Bank of Vietnam (SBV) has directed banks to cut interest rates to reduce difficulties for the economy because the country has greater room for credit growth and money supply in the second half of this year.
Obviously, it is difficult to significantly lower lending interest rates to 14-15 percent because it takes time for policies to take effect, and inflation, despite increasing by 1.09 percent in June is still much higher than the same period last year. (Consumer prices increased 20.82 percent in June over the same month last year).
But some commercial banks are offering annual deposit rates of up to 18 percent.
These are small banks or those that the central bank is monitoring for reducing lending to the non-manufacturing sector.
To facilitate the reduction of interest rates, the SBV has ordered all lenders to cap credit to the non-production sector at 22 percent of total loans by June 30, and at 16 percent by the end of the year. If the central bank does not do it, the race would not stop.
The property and stock sectors can accept high interest rates, even 24-25 percent a year, but the manufacturing sector cannot.
Most commercial banks have gradually reduced lending to the non-production sector, but some small ones are yet to do so. Given the low liquidity in the property market, it is not easy to collect debts in the sector. Thus, commercial banks have to strengthen capital mobilization while increasing lending to production and business sectors and trying to limit credit to the non-manufacturing sector.
Some banks mainly mobilize short-term or non-term capital, so they have to mobilize more capital to maintain their liquidity. So some small banks are offering high deposit interest rates of 18-19 percent, but the rates are still lower than previous months.
Critics argue that loosening the monetary policy too soon could fuel inflation like it did in 2008. Can you comment on this?
In fact, neither the SBV nor the government has said the monetary policy will be loosened. As far as I am concerned, the monetary policy should still be tight, but we should consider its effectiveness. Regulations recently issued by the SBV, such as keeping credit growth at 20 percent this year and credit to the non-production sector at 16 percent of total lending by December 31, show that the monetary policy has not been loosened.
However, the monetary policy should be more effective. The economy's credit growth was
7.13 percent in the first half of this year while money supply increased nearly 3 percent, far below the target of 15-17 percent for this year.
The key issue for Vietnam now is to control inflation. High inflation will hurt poor farmers, and enterprises.
About credit to the non-production sector, it was said that commercial banks have little time to meet the SBV's requirement to reduce it to 22 percent of their total loans by June 30. Have many lenders failed to meet this target?
The SBV issued an official document in March, when there were signs of the macroeconomic instability, asking commercial banks to lower their credit to non-production sector. However, it has been warning lenders to limit their loans to the real estate and stock market sectors, which carry many risks, since 2010.
Most commercial banks have already met the SBV's requirement. Only eight lenders have not done so. However, their loans to the sector have also reduced to some 30 percent from 50-60 percent months ago.
I think the SBV's regulation is necessary to prevent an interest rate race.