Interest Rates Are Now Back to 2007’s Level, Says Vietnam Central Bank

The average deposit as well as lending interest rates have dropped to roughly 2007’s levels [before the global economic crisis], the local online newspaper reported, citing data from the central bank.

Specifically, deposit rates have decreased by 3-5% p.a while lending rates fell by 5-8% p.a. from the beginning of 2012. Lending rates were 9-13 % p.a. for prioritized areas, 12 -15% p.a. for other businesses and consumers. The rate reduction has helped to remove difficulties; ease borrowing cost pressure for businesses and households, and thereby raising aggregate demand of the economy, the central bank said.

In the first ten months of the year, the central bank cut the benchmark rates 5 times and lowered rate caps 4 times by 1% each amid slowing CPI rise.

The central bank also asked banks to consider trimming down interest rates for previous lending to 15 % p.a. from July 15 this year. Accordingly, by early October, dong loans carrying rates of over 15% p.a. accounted for only 20.9% (down about 70% from the figure as of mid-July).

Lending has expanded since June after five months of contraction. [By the end of September, the country reported credit growth at 2.45%]. Credit growth for the prioritized areas is always higher than average; with loans for agricultural and rural sector increasing by 9.57%, lending to exporters rising 10.76%; and loans to non-prioritized industries making up only about 4.8% of total outstanding credits.

Low credit growth was due to weak demand that deteriorated the ability to absorb capital of firms as well as the inefficiency of enterprises. Moreover, local lenders were cautious to lend out for fear of piling bad debts.

Interest rates on the interbank market tend to ease and remain low compared to end 2011. As of Oct 25, the interbank rates stayed at 3-3.5% p.a. for overnight, 3.5-4% for 1 week, 4-4.5% for 2 weeks, 5.5-6% for 1 month terms.

By Oct 25 this year, the central bank raised about VND14 trillion from sale of Treasury bills with rates of between 4 to 7%.

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