VietNamNet Bridge – The National Financial Supervisory Commission has stressed the need to further cut bank lending rates to enable businesses to survive and grow.

It is one of several recommendations the NFSC made to the Government late last week while urging it to be more cautious while drafting its fiscal and monetary policies for the year.

Nevertheless, it said the government should be nimble in adjusting policies to suit changing situations to achieve its main goals of stabilising the economy, controlling inflation, and maintaining reasonable GDP growth.

The credit interest rates can be cut sharply in 2013 since aggregate demand remains low, precluding the possibility of a return to high inflation.

Members of the commission said the current lending interest rates are too high that most companies, including state-run, face financial difficulties.

As a result, the number of newly established firms was down by 10 per cent and investment was down by 7.5 per cent, they said.

More than 51,800 firms closed or temporarily ceased operations last year.

The commission expects lower interest rates to enable firms to revive production, creating more jobs.

It also said considering dollar deposit interest rates in other countries (0.5-0.75 per cent in the US), further cuts in deposit interest rates in Viet Nam would not affect the exchange rate.

It would not cause people to withdraw their savings to invest in other asset classes either, thus not jeopardising banks'liquidity situation.

Banks' response

Nguyen Hoanh Minh, deputy director of the State Bank of Viet Nam's HCM City branch, told a recent conference that banks would continue to cut lending interest rates this year, especially for five priority sectors.

HCM City-based banks are expected to lend over VND200 trillion (US$9.60 bllion) to businesses this year.

"Credit mechanisms, more comfortable interest rates, and attaching priority to [lending for] production and trading activities, particularly by small and medium-sized enterprises, enable banks to ensure availability of funds for companies in 2013," Minh said.

Banks will also step up lending in foreign currencies by increasing the categories of eligible borrowers.

They are likely to remove the current 16 per cent cap on lending to property projects and consumer and securities loans, and cut the rates on loans for real-estate projects to below 15 per cent.

But analysts warned that it would be difficult to make sharp cuts in interest rates to 5-8 per cent immediately.
Economist and NA member Dr Tran Du Lich said businesses rely strongly on banks for funds.

In Viet Nam, 97 per cent of all loans are provided by banks while in other countries medium – and long-term loans are provided by non-bank financial institutions, he said.

Interest rates are an outcome of market forces, so the central bank cannot force banks to lend at too low rates, he pointed out.

Besides, if the lending rates are too low, deposit rates would follow suit, forcing people to pull out their deposits to buy gold and foreign currencies, he warned.

Tran Anh Tuan, general director of the Nam A Joint Stock Commercial Bank, concurred with Lich, suggesting that loan interest rates should be around 11 per cent.

Source: VNS