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NEWS UPDATES Asean Affairs        7  March 2011

Vietnam controls interest rates

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Banks State Bank of Vietnam Governor Nguyen Van Giau, has urged banks to take seriously the 20 percent ceiling for credit growth set for this year.

Commercial banks will need to tweak their 2011 lending strategies to ensure they keep within the limit, he said.

Banks planning for higher credit growth have to get express approval from the central bank which will consider their safety ratio and effect on the banking system.

Deputy governor Tran Minh Tuan expressed worry about the current rapid growth in credit. The rate was 4 per cent in the first two months, and is expected to top 15 per cent in the first half.

Giau confirmed the government's plan to gradually reduce loans to non-manufacturing sectors from the current 18.7 percent to 16 percent by year-end. Total outstanding credit to non-manufacturing borrowers is now around VND431 trillion (US$20 billion).

Eighteen out of the 42 banks have over the 25 percent proportion of loans for non-manufacturing sectors while 24 others hold a proportion of over 26 per cent.

Speaking about the gold market, Giau said the central bank planned to gradually stop trading in gold bullion.

It would stop issuing new licences for manufacturing gold bars and only allow traders to buy gold bars from the market, and not sell them for a while before completely halting the trade. According to a SBV report following surprise checks, on Thursday Western Bank's Ha Noi branch was found to be offering 17.8 percent interest on deposits in disregard of the central bank's ceiling of 14 percent.

On February 16 Kienlong Bank's branch in central highland Dac Lak Province was caught offering 15.7 percent for one-month deposits.

The governor has ordered the boards of the two banks to thoroughly review the violations and penalise the individuals and offices responsible.

Banks were considered as dependable trustees of their money by the public and so all actions by banks that erode that trust must be severely punished, he explained.

Nguyen Ngoc Bao, director of the central bank's Monetary Policy Department, said since the 14 per cent interest rate cap was prescribed by a central bank circular, it was tantamount to a legal provision, meaning any violation would be penalised.

Earlier, in the absence of such a circular, violations could not be treated as a legal offence and punished, he explained.

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