The Vietnam Banking Association (VNBA) October 1 asked its members to cut deposit and lending interest rates in dong as the agreement was reached by them four months ago.
The association asked commercial banks to cut the deposit interest from the current highest level of 11.2 percent per annum to 11 percent per year.
This plan is expected to be in place from October 15.
Duong Thu Huong, VNBA general secretary, said commercial banks will have favorable conditions to lower interest rates because they will easily access cheap funds when the State Bank of Vietnam has amended regulations on the use of deposits for lending.
According to the amended Circular 13, which took effect on October 1, banks are allowed to use up to 25 percent of their non-term deposits for lending, and also to have their deposits with the State Treasury counted as part of their funds for lending.
The amended circular means that banks’ funds for lending are now increased.
The association said the Central Bank will also continue to help banks reduce interest rates till the end of this year through its flexible monetary policies.
According to VNBA, lowering interest rates down to 11 percent per year is completely feasible, and lending interest rates will follow the deposit rate's move to go down further in near future.
Through the commitment with VNBA at a meeting in late September, many commercial banks are preparing to cut interest rates.
On July 5, the Vietnamese monetary market received the event that commercial banks simultaneously cut deposit and lending interest rates in dong.
Through the consensus amongst the members of VNBA, the deposit interest rate of 11.5 percent has been reduced to 11.2 percent per year. Lending rate also gradually decreased to about 12.5 percent - 15 percent per year, depending on the prioritized and preferential borrower groups.
Since then, the schedule to continue to cut down interest rates according to the government's directive (down to 10 percent per year for deposits and down to 12 percent per year for lending) has yet to be done.
On September 27, the State Bank of Vietnam officially issued Circular 19, amending and supplementing a number of important points in Circular 13 to facilitate credit institutions to boost credit growth and mobilize capital.
Therefore, the roadmap to lower interest rates is expected to be carried out by banks from October 15 as explained by VNBA so that its members have enough time to adapt to the new regulations.
At a conference on macroeconomic situation and stock market in September, Dr Cao Sy Kiem, former Governor of the Central Bank, and president of the Association of Small and Medium Enterprises in Vietnam, said that higher interest rates were one of the greatest difficulties for enterprises in 2010.
In 2009, many businesses were in favor of low interest rates, supported by the stimulus policy of the government.
In 2010, interest rates increased sharply, plus the exchange rate increases, along with material prices pushed up, which boosted production costs, while the expansion of business and markets was hard due to the impacts of the financial crisis.
According to an analysis of Dr Kiem, loan interest rate is too high compared to the endurance of businesses.
Loan interest rate is now standing at 14 percent - 15 percent per year, if companies achieve profitability rate of 20 percent, the rest must also cover many other expenses.
Accordingly, many cases of high-interest loans can bring losses to business, or make profits decline.
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