Since early this year, several businesses have borrowed in VND from commercial banks at annual interest rates of between 18-20 percent.

Many export businesses have borrowed in US$ and then sold in VND, leading to low growth in domestic currency credit. Consequently, foreign currency credit growth has increased sharply over the past four months, from 14 percent in March to 17 percent in April while domestic credit growth has been at just 0.9 percent.

Mr Nghia says that the growth in domestic credit is not strong as the interest rates on loans in VND is still high and businesses prefer to borrow foreign currency.

In the face of rising deposits, some commercial banks have managed to buy bonds from the government and bond issuing companies and reduce their interest rates on loans.

On the other hand, the inflation rate is now put under control so the State Bank of Vietnam (SBV) has taken bold steps to facilitate the circulation of capital inflows thus boosting economic growth.

As of May 1, commercial banks agreed to reduce their interest rates on loans by 0.5-1 percent/year and apply a maximum lending interest rate of 13 percent/year for businesses involved in agro-forestry and fishery production, exporters and small and medium sized enterprises.

They also agreed to drop interest rates on loans in VND by applying an interest rate of 13 percent/year as agreed by members of the Vietnam Banking Association (VNBA) and they have also not to encourage unhealthy competition by offering promotional programmes.

Recently, many commercial banks have decided to reduce sharply lending interest rates However, the interest rates remain high for businesses who are continuing to wait for a further reduction in the near future.

Many experts say that interest rates will further drop because the bank’s main sources of income come from credit, especially when gold and foreign currency trading does not bring in huge profits. Therefore, to increase their incomes from credit activities requires the banks to reduce the loan rate to attract more clients. Currently, several banks say that they will continue to lower the interest rates on loans for businesses.

The Bank for Investment and Development of Vietnam (BIDV) has announced a short-term loan rate of 13 percent per year for production projects and 12.5 percent rate for loans to serve exports, agriculture, rural development, wood, coffee, rubber and purchasing and processing agricultural and seafood products.

Stable deposit rate

Le Xuan Nghia says that the ceiling interest rate for deposits will remain at 12-13 percent per year.

SBV Deputy Governor Nguyen Dong Tien says that compared to the target of containing the inflation rate of 7 percent, the interest rate for deposits is currently too high and will drop in the future.

The monthly credit growth is around 1 percent but in May it is expected to hit 2 percent as import-export activities in May grow faster than in other months so the demand for loans is also higher.

In fact, many businesses lack capital. In addition, on May 7, the Government asked the central bank to come up with suitable ways of improving liquidity and lowering the deposit rate to 10 percent and the loans rate to 12 percent.

Positive signs

Mr Tien says that the commercial banks agreed to reduce their interest rates on loans which will help businesses and the public to access capital at a lower cost. He confirms that interest rates for prioritised fields have also been reduced.

The securities market has seen a positive reaction. The money in circulation at both securities trading centres reached around VND5,000 billion each, hitting a record high in May after many investors had rushed to buy securities.

Earlier, in April, the Ho Chi Minh Stock Exchange (HOSE) recorded around 40-60 million securities being transacted each session. In May, transactions continue its steady growth at 80 million per session. The HOSE hit a record high on May 7 with more than 112.4 million securities.