Vietnamese credit growth stalls

In order to tighten up on liquidity and reduce inflationary pressures, the State Bank has targeted overall credit growth this year of no more than 20 percent.

Interest rates charged for dong-denominated loans increased by an average of 1 percentage point over March, with average rates ranging between 14-17 percent per year for manufacturing sectors and as high as 18-22 percent per year for other, non-productive sectors. Some negotiated rates were reportedly as high as 25-27 percent per year.

While borrowing cost for the dollar was 6.83 percent per annum.

The country's broadest measure of the total money supply edged down 0.72 percent month-on-month during April, yet was up 0.98 percent from the end of 2010. Cash in circulation was estimated to rise 1.45 percent over March and 4.12 percent from Dec. 31, 2010.

National Monetary Policy Advisory Council member Nguyen Thi Mui said, "Deposits at major commercial banks are sharply declining." Total Vietnamese dong deposit at commercial banks in April were down 1.84 per cent against the previous month.

Corporate deposits at Vietinbank, for example, fell by over 17 percent between December and April, said a senior official of a State-owned commercial bank who asked to remain anonymous. "Perhaps sources of capital in the economy are draining away, or the current interest rates are not attractive enough compared to the soaring inflation," she said.

The average interest rate being offered on dong deposits in the past month was unchanged at 13.4 percent per year, although it remained widely rumoured that some commercial banks were trying to bypass the interest rate cap of 14 per cent to offer depositors effective rates of up to 17-18 percent per year.

"It is of great concern when some banks illegally offer very high interest rates to attract capital away from other banks, setting off an interest war," commented the bank official. Average interest rates for US dollar deposits were 2.66 percent, down 2 percent from March, while total dollar deposits were up 1.46 percent.