Finance & Banking
Last updated: Tuesday, May 21, 2013
SBV Governor: Interest Rates May Fall FasterPosted: Tuesday, May 22, 2012
In its Resolution 13/NQ-CP on solutions to ease difficulties for businesses and support the market in the wake of economic downturn, the Vietnamese Government has asked the State Bank of Vietnam (SBV) to collaborate with relevant ministries, and local agencies to continue to lower lending rates. In a press meeting, SBV Governor Nguyen Van Binh said, given favourable macroeconomic development, interest rates may be reduced faster than the initially expected target of 100 percentage points a quarter.
Quick, but not too low
Governor Nguyen Van Binh said the central bank has gradually reduced interest rates on easing inflationary data. Inflation is forecast to be controlled below 10 percent this year. If we assume inflation growth at 8 percent - 8.5 percent for regulation of monetary policy, and interest rate policy in particular, deposit interest rates will be brought down to 9 - 10 percent per annum later this year. In early 2012, the SBV sent a message that interest rates would be reduced 1 percent each quarter if the macroeconomic environment is favourable.
“But, with the current macroeconomic developments, especially inflation, we are able to cut interest rates more quickly,” said Governor Nguyen Van Binh. However, the head of the central bank said interest rates should not be decreased to less than 9 - 10 percent per annum, citing the rationale for assumed inflation growth of 8 - 8.5 percent this year. This rate aims to ensure the position of the local currency - dong, thus guaranteeing the stability of foreign exchange market.
The deposit rate of 9 - 10 percent per annum for Vietnamese dong savings is still more attractive than other investment channels, such as gold, foreign currencies and real estate.
In explanation of the credit slump of 1.71 percent in the first four months, Governor Binh said that this is understandable in the context of curbing inflation. In previous years, credit growth was always very high, climbing 34 percent a year in the last five years and 29 percent a year in the last 10 years. Meanwhile, to curb inflation and restore macroeconomic stability, the State Bank aims to cap credit growth at 15 - 17 percent in 2012.
But, the central bank is keeping a close watch on macroeconomic development and supporting businesses to access capital with reasonable interest rates to maintain and develop their business activities.
Channelling capital into production, exportation
According to Circular 14 of the State Bank of Vietnam (SBV), lending rates for four priority fields (agricultural and rural development, export, supporting industries, and SMEs) are capped at 15 percent per annum.
Governor Nguyen Van Binh said that while credit growth is controlled to curb inflation, capital flows need to be directed into highly prospective fields to ensure economic growth at a reasonable rate. The result in 2011 proved the soundness of this orientation when the credit growth of the entire banking system was just 13 percent, but economic growth still reached 5.89 percent. The 54 percent rise in export credit was an important factor for exports to increase 34 percent.
Similarly, credit growth of over 30 percent for agriculture and rural development contributed to the impressive achievements of this field. SMEs and supporting industries - the driving force of economic development and the largest employer - are in dire need of support.
However, Governor Nguyen Van Binh noted that while many businesses will have easy access to bank loans, some will not, because according to regulations of the central bank, the ceiling interest rate of 15 percent per annum is only applicable to borrowers meeting conditions provided by credit institutions.
He said credit institutions can lend with very low rates, even 13 percent per annum, if they are sure of debt repayment. This is more profitable than holding government bonds and SBV bills bearing annual rate of 10 percent or so. But, the head of the banking sector said lowering interest rates is just one of the overall business support solutions.