SBV poised to cut lending rate with new measures

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Báo Tuổi Trẻ English - 34 month(s) ago 7 readings

SBV poised to cut lending rate with new measures

The State Bank of Vietnam is considering using new tools to bring down the lending interest rate to 17-19 percent, a key issue confronting the banking sector now.

At a recent meeting with bankers, central bank Governor Nguyen Van Binh suggested several measures to cool the rates, newswire Vnexpress said.

Among them are using VND37 trillion (US$1.77 billion) the central bank has in the form of compulsory reserves from banks.

The SBV could also provide VND10-15 trillion to 10 small banks suffering from a liquidity crunch, Lao Dong newspaper said.

It could even pick up majority stakes in some of them.

A senior central bank official said that small banks also have a certain role to play in the economy by providing services to households, farmers, individuals, small businesses, and small and medium-sized enterprises.

An economist told Tuoi Tre that the use of the compulsory reserve had been discussed, but the central bank would first prioritize other tools like refinancing and open market operations.

In addition, the central bank could also issue bonds to mop up excess liquidity at some banks to refinance other banks and adjust the compulsory reserve ratio.

Reuters reported that the central bank was likely pump VND300 trillion ($14.4 billion) into the economy from now until the end of the year and allow commercial banks to lend around VND238 trillion.

The figures point towards an increased money supply and credit, but Thanh Nien newspaper said neither would exceed the official targets of 15-16 percent and 20 percent.

Credit grew by just 8.85 percent this year as of August 30, the central bank said. Credit growth in 2010 was around 28 percent.

Vietnam should avoid reducing interest rates too soon since that may weaken its currency and raise questions about the government’s commitment to fighting inflation, Bloomberg quoted the International Monetary Fund as saying at a recent meeting with the government.

“It is important that monetary policy not be eased prematurely, because the recent improved sentiment towards the dong remains relatively fragile,” Benedict Bingham, the IMF’s senior resident representative in Vietnam, told Bloomberg.

His comments are a summary of remarks he made at a Sept. 6 meeting in Hanoi attended by officials including Prime Minister Nguyen Tan Dung, Bloomberg reported.

Money supply to increase

The government hopes to cap credit growth at 20 percent and M2 money supply growth at 15 percent this year is the lowest in the history since 1996, said Dr Dinh The Hien, director of the Research Institute for Informatics and Applied Economics at a recent conference between banks and enterprises held by Vietnam Chamber of Commerce and Industry (VCCI).

During 2007-2010, the average credit growth was at 36 percent per year and average M2 money supply growth was at nearly 29 percent per year.

However, it was the very high levels against other countries in the world.

As calculated by Hien, in the remaining four months of this year, the credit will increase additional VND131 trillion, lower than VND208 trillion of the same period last year.

However, the M2 money supply in the late four months of this year would reach over VND196 trillion, higher than VND172 trillion of the same period last year.

No long ago, the State Bank of Vietnam (SBV) issued a Circular No 22 to remove the regulation on the ratio of lending on deposits at credit institutions.

According to Bao Viet Securities Co, after this circular taking effect, credit institutions will have additional VND460 trillion for lending activities.

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