Banks maintaining lending interest rates

16:37' 09/04/2008 (GMT+7)
VietNamNet Bridge – Though commercial banks have slashed deposit interest rates on both VND and US$ deposits, they still do not intend to lower lending interest rates now, the thing that businesses are looking forward to.
Duong Quang Khanh, Deputy General Director of VIB Bank, said that his bank “will consider lowering lending interest rates after slashing deposit interest rates. However, the bank will have to consider the situation to decide when and how much to slash interest rates”.
A representative of Techcombank gave a vague answer when asked when the bank will cut lending interest rates, saying that the lower input interest rates will help the bank lower lending interest rates; however, lending interest rate decreases may not correlate with deposit interest rate decreases.
The State Bank of Vietnam (SBV) itself does not know for sure when commercial banks will cut lending interest rates. There has been no official agreement so far about the ceiling lending interest rate.
Leaders of the State Bank of Vietnam, when mentioning the interest rate cuts, also said that commercial banks themselves will decide if they will cut interest rates, while the State Bank cannot command banks to do this or anything else.
According to the deputy general director of a joint stock bank, the lending interest rate decrease will occur one month after the day of cutting deposit interest rates at the earliest.
Duong Thu Huong, Secretary General of the Vietnam Banking Association (VNBA), said: “We cannot say that if the deposit interest rates decrease today, the lending interest rates must decrease tomorrow.”
However, Huong said that SBV and VNBA still expect lending interest rate decreases in the long term, which can help ease the burden on businesses, help stabilise the market and fight inflation.
According to Tran Bac Ha, Chairman of the Bank for Investment and Development of Vietnam (BIDV), with the ceiling deposit interest rate of 11% and other expenses (for making compulsory reserve and ensuring the ROE (return on equity) at 12-15% per annum), banks can lend at 14.5-15% per annum. Ha said that the government needs to help commercial banks ease difficulties and reduce lending interest rates by lowering the corporate income tax from 28% to 25%, to be applied this year.
Currently, the popular lending interest rate is high at 18% per annum, sometimes at 21% per annum.
In fact, the current ceiling interest rate policy now contains two paradoxes. First, only the ceiling deposit interest rate exists, while there is no ceiling lending interest rate.
Second, the lower interest rates seem to come contrary to the positive real interest rate policy the Prime Minister asks banks to follow
The Prime Minister, while emphasising the need to prioritise the fight against inflation, has asked the State Bank of Vietnam to tighten monetary policies.
Tightening the monetary policies can be understood as pushing up withdrawing money from circulation. In order to withdraw money from circulation, it is necessary to raise the deposit interest rates (instead of lowering the rates as commercial banks do now) and ensure positive real interest rates for depositors.