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Commercial banks resist gov’t order to cut interest rates

In Uncategorized on May 29, 2010 at 5:17 pm

Commercial banks resist gov’t order to cut interest rates

QĐND – Saturday, May 29, 2010, 20:52 (GMT+7)

The nation’s commercial banks are still struggling to comply with a Government order to cut lending interest rates to no more than 12 per cent per year in order to help businesses access credit.

But market pressures continue to push rates upward, and many bankers and banking experts told Viet Nam News that lower interest rates needed to be coupled with caps on deposit interest rates or lower input costs.

“Lowering borrowing costs will be an impossible mission for the system if some banks keep raising deposit interest rates,” said the deputy director of a Ha Noi-based bank who asked that his name be withheld.

“Some banks have no trouble with liquidity but they just keep raising deposit rates to maintain sustainable capital sources and stay competitive,” said Bao Viet Bank general director Phan Dao Vu.

“Deposit interest competition is getting fiercer, so lending interest can’t be cut right now,” said An Binh Bank deputy director Pham Quoc Thanh. “Banks need time to balance capital costs.”

Cutting borrowing in fact is believed to require a very great attempt, as about 80 per cent of the economy’s capital demand of the economy depends on credit institutions.

Some suggested that the State Bank of Viet Nam needed to use monetary policy to adjust the amount of currency in circulation. High interest rates implied credit demand was higher than the supply, suggesting that the State Bank should increase the cash supply.

In an interview with reporters on the sidelines of the National Assembly meeting this month, the vice chairman of the National Assembly’s Economics Committee, Vu Viet Ngoan, said, “A very important tool to help banks cut interest rates would be to loosen monetary policy and inject more money into the economy.”

However, an oversupply of currency could trigger inflation, economists note.

“Interest rate reductions should be achieved by applying economic measures other than administrative orders. The State Bank is doing very well,” Ngoan said.

Eximbank general director Truong Van Phuoc said that interest rates would continue to track both market signals and inflationary movements.

Credit grew by just 5.58 per cent between December and April, and just 1.73 per cent in April alone, against an official target for the year of 25 per cent.

Source: VietNamNet/Viet Nam News

Source: QDND

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