VINACHEM

HA NOI — Negotiated or market interest rates can now be charged on Vietnamese dong-denominated short-term loans at commercial banks, the State Bank of Viet Nam decided yesterday, in its latest move to deregulate lending interest rates.

The move follows deregulation of interest rates on medium- and long-term commercial loans back on March 12. The deregulation caused rates to increase to an average of 16-18 per cent per year and to spike as high as 20 per cent.

"The interest rate deregulation aims to ensure the stability of the monetary system, meet capital demands, and lower interest rates," State Bank Governor Nguyen Van Giau said yesterday, noting that the decision was widely supported by commercial banks.

Giau urged credit institutions to charge rates at a durable levels based on capital supply and market demand and to publicly list lending rates. Lenders were also required to report lending demand to the central bank, he said.

Then, short term interest rates would be allowed to be higher than 12 per cent per year. Yesterday, some private banks polled by Viet Nam News released that borrowing cost for short loans may be 14-16 per cent per year.

"We have set aside VND20 trillion (US$1 billion) for short-term lending," said Asia Commercial Bank deputy director Nguyen Thanh Toai. "Small- and medium-d enterprises and targeted customers will be able to borrow at 14 per cent per year, while others may pay 15-16 per cent."

State-owned banks like Vietcombank, Vietinbank, the Bank for Development and Investment of Viet Nam (BIDV), Mekong Housing Bank and Agribank were reportedly intending to offer loans at 13-14 per cent yearly.

The State Bank was trying to balance the demand of enterprises for lower borrowing costs while capping a rapid credit expansion which could increase inflationary pressures, strongly urged major banks not to charge more than 14.5 per cent per year on medium- and long-term loans and 12 per cent on shorter term loans.

To discourage interest rates from climbing too high, the central bank earlier this month poured additional capital into the banking system. Following the move, interbank rates last week fell by 0.13-0.42 percentage points, the State Bank noted yesterday. Overnight and weekly interbank rates ranged at 7.16-8.47 per cent per year, while longer term loans were at 10.18-10.28 per cent.

Interbank transactions in dong last week totalled VND75.49 trillion ($3.97 billion), down 5.9 per cent from the previous week, while interbank loans in US dollars fell by 10 per cent to $1.26 billion.

The nation has targeted credit growth of 25 per cent in 2010, well below last year's actual growth of around 39.6 per cent. Rising interest rates in the first quarter, however, held credit growth to just 3.34 per cent.

The latest tack by the central bank has marked a new age of deregulated interest rates following a period starting late 2007 in which interest rates were capped and pegged to the prime rate.

In its Asian Development Outlook issued on Tuesday, the Asian Development Bank predicted Viet Nam's would see inflation of 10 per cent this year and recommended that the Government and the central bank continue tightening monetary and fiscal policies to limit inflation and devaluation pressures.

(Source: VNS)