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November 29, 2008

Vietnam’s banks urged to cut rates to boost growth
The Vietnamese government has called on banks to slash their lending rates as part of efforts to prevent an economic downturn, reported Reuters.

Members of the cabinet said interest rates for dong loans charged by banks should drop below 10 percent from around 15-16 percent now, the Finance Ministry said in a report on Friday.

The cabinet also agreed that corporate income tax should be cut to 25 percent from 28 percent and proposed the implementation of a new personal income tax law and tax breaks for small and medium sized businesses, the report said.

"The global financial crisis has a direct impact on domestic business activities, exports and domestic consumption ... banks' interest rates should be cut to below 10 percent," it said.

The State Bank of Vietnam has cut benchmark interest rates and lowered reserve requirements three times since October 21, and bankers said the Finance Ministry's report of the cabinet meeting suggest more rate reductions were in the pipeline.

"It would not be a surprise if the central bank cut rates again," said a Hanoi-based banker with a foreign bank, who declined to be named.

The Southeast Asian country has battled double-digit inflation and a widening trade deficit for much of the year by tightening monetary policy, but officials appear increasingly concerned the global credit crisis could drag down growth.

The dong's base rate now stands at 11 percent and banks are allowed to lend at a maximum 16.5 percent per year, which is still considered too expensive for businesses to borrow, bankers have said.

Last month, Hanoi estimated the economy would grow 6.7 percent in 2008, down from the government's projection of annual growth as high as 9 percent.

The central bank raised the base rate three times between February and June to contain inflation, which approached an annual rate of 30 percent before easing to an estimated annual growth of 24.2 percent in November from 27.9 percent in September.

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