VietNamNet Bridge – If the inflation rate is curbed at 6.5 percent this year, the dong ceiling deposit interest rate would not go down to below 7 percent per annum as expected by businesses.

The lending still gets stuck even though the consumer price index (CPI) in the first seven months of 2013 increased slightly by 2.68 percent, because the bad debt situation has not been improved which makes it impossible for the national economy to “absorb” the capital.

Businesses still cannot access bank loans because of the high bad debt ratios and the lack of assets to mortgage. However, there is no high possibility of banks easing the lending interest rates.

According to Dr. Tran Du Lich, a Member of the National Advisory Council for Finance and Monetary Policies, if the yearly inflation rate is 7 percent, the lending interest rate at 11-13 percent is overly high. The rate would not encourage profitable enterprises to expand their business, while it would worsen the bad debt situation of the enterprises which have been trying to recover their production.

The State Bank of Vietnam has reduced the OMO (open market operation) interest rate further from 6 percent to 5.5 percent. The move is believed to help cool the market which saw the overnight interest rate reaching the highest peak in the last many years.

However, the State Bank would not help more opportunities to ease the interest rates further because of the anticipated increasing inflation rate to be caused by the petrol and electricity price increases.

HSBC also thinks that the OMO interest rate cannot be slashed further. When the interest rates tend to go up around the globe, the OMO interest rate reduction in Vietnam would encourage the capital flow out of Vietnam.

Lich went on to say that if the inflation rate is 6.5 percent this year, the interest rate would not be lower than 7 percent per annum to ensure the real profits for depositors.

The State Bank of Vietnam now sets up the ceiling deposit interest rate in order to prevent the interest rates from escalating. However, Lich thinks that the ceiling interest rate mechanism won’t exist for a long time.

Deputy Director of the HCM City branch of the State Bank of Vietnam Nguyen Hoang Minh said on VnExpress, he also thinks it would be difficult to ease the ceiling interest rate further after it dropped sharply from 14 percent to 7 percent just within one year. However, he thinks the lending interest rates need to be slashed to make loans more accessible for businesses.

Money has been flowing to commercial banks continuously, despite the low deposit interest rates.

A report of the State Bank showed that by early August, the dong deposit interest rate of state owned commercial banks had dropped to 1-1.2 percent for demand deposits, 5-6.5 percent per annum for 1-less than 6 month deposits, 6.5-7 percent for 6-12 month deposits. Long term deposits enjoyed higher interest rates of 8-9 percent.

Meanwhile, joint stock banks’ interest rates were a little higher by 0.5-1 percent per annum.

According to the HCM City Statistics Office, the mobilized capital of state owned banks in June still rose by 2.63 percent. The total capital mobilized by early July had increased by 1.7 percent over the previous month and by 6.1 percent over the same period of the last year.

Compiled by C. V