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Vietnam: Banks cut deposit rates to help lending


October 14, 2008

Vietnam: Banks cut deposit rates to help lending
Vietnamese banks have slashed interest rates on dong deposits by up to 68 basis points in the past week as they moved to reduce borrowing cost to boost lending, Reuters quoted bankers as saying Monday.

Average annual rates on 12-month dong deposits now stand at 16.70 percent, down from 17.38 percent a week ago, central bank data showed.

The rates on six-month deposits were reduced by 37 basis points to an average of 17.39 percent from 17.76 percent last Monday.

"Bigger state-owned banks are the most aggressive in cutting rates because they hold sufficient funds, while smaller joint stock banks are still slow to cut rates as they need to keep the rates attractive to raise more funds," a banker at a foreign bank in Hanoi said.

Vietnam's second-largest bank, state-owned BIDV, said last week it had cut annual rates on dong deposits from Oct. 10 to as low as 15 percent for terms of less than 12 months from 18-19 percent previously.

This week banks have also begun lowering rates on dong loans with state-owned banks cutting up to 80 basis points on 12-month debt to 19.7 percent from 20.5 percent last week. The smaller joint stock banks reported moderate cuts of around 20 basis points in dong lending rates to 20.3 percent.

State-owned Vietinbank said it has cut rates as of Monday to 18.2 percent on short-term dong loans from 19.5 percent.

"Some of our clients have threatened to cancel their loan contracts with us to move to the state-owned banks to take advantage of the lower rates," a banker at a small private bank in Hanoi said.

Meanwhile, a number of banks have resumed lending to new home buyers, even though property prices have been falling. According to some estimates prices have fallen up to 30 percent in the country's commercial hub Ho Chi Minh City.

Bankers at HSBC and state-run Mekong Delta Housing Bank said their banks resumed mortgage lending to buyers of luxury condominium projects in Ho Chi Minh City's Saigon South project with maturity of up to 20 years and at rates of around 19 percent.

The central bank said US dollar exchange rates had remained stable at around 16,580 dong to 16,640 dong despite the deepening financial turmoil in the United States.

"The impact from the crisis in the United States on Vietnam is limited. However if the crisis spreads to other economies it would affect the investment inflows and the country's export import markets," central bank Governor Nguyen Van Giau said last week after a meeting with the US Treasury in Washington.

The United States is the largest importer of Vietnamese products such as clothing, shoes, crude oil and food. Imports in the first nine months totalled $8.5 billion but analysts have said sales would slow due to weakening demand there.

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