Prime rate cut to help enterprises

Hanoi (VNA) - The State Bank of Vietnam (SBV) cut the prime interest rate by
1 percentage point on Oct. 20 to 13 percent in an effort to improve the
lending environment for capital-troubled companies.

Effective on Oct. 21 the refinancing rate was decreased to 14 percent from
15 percent and the discount rate was cut by 1 percentage point to 12
percent. Overnight interest rates for electronic and compensation payments
on the inter-bank market is down to 14 percent from 15 percent.

(The central bank had consistently increased the prime rate from 8.25
percent to 14 percent over the course of the year. Yesterday's decision was
the first in the opposite direction.)

The central bank also doubled interest rates to 10 percent annually for
compulsory commercial bank reserves and decided to pay off treasury notes
worth 20.3 trillion VND (1.22 billion USD) issued to banks in March for
local banks.

These simultaneous decisions were designed to make more capital available to
commercial banks to increase liquidity and cut lending rates. As a result
local cash-strapped companies will have the opportunity to get bank loans,
in order to maintain in business and promote investment, the SBV stated in
its press release on Oct. 20.

Top policy makers are concerned that the difficulties faced by local
companies may badly affect this year's 7 percent economic growth target.

"The decision to cut lending rates is a good one. I estimate that the
lending rate can be cut as much as 2.5 percent yearly. Capital-troubled
enterprises will have more opportunities to survive," Vu Duy Thai, chairman
of Hanoi Industrial and Trade Association told Vietnam News.

Nguyen Hoa Binh, chairman of Vietcombank, told Vietnam News that with these
decisions, they would have enough money to allow them to consider a further
cut in lending rates.

The Bank for Agriculture and Rural Development (Agribank) on Oct. 20 decided
to cut its lending rate by about 1 percentage point to 16.5 percent annually
for agriculture and fishery household enterprises and fishery household
enterprises and to 16.8 percent for long-term bank exporting customers.

"We will consider rate cuts to set standard rates on a case-by-case basis,
depending on the feasibility of the proposal," said Nguyen Thanh Toai,
deputy general director of Asia Commercial Bank.

With these moves, local policy makers are likely to signal a somewhat looser
monetary policy compared to the previous 10 months of keeping it tight
against economic turbulence worldwide. This means more money will go into
circulation.

SBV Government Nguyen Van Giau was not available for comment on Oct. 20.
However, in its press release, the central bank warned banks to be cautions
in managing capital, and said banks should prepare risk prevention measures
against the effects of global financial turmoil.

Measures to curb inflation by the Government have generated positive
results. The General Statistics Office reported the consumer price index in
September rose just 0.18 percent, the lowest monthly increase since the
beginning of the year.

September's trade deficit stood at 500 million USD, the third consecutive
month that it remained under 1 billion USD. The value of the nation's
exports in the first nine months reached 48.6 billion USD, an increase of 39
percent against the same period last year.

The Government's efforts to stabilise the economy are aimed at sustaining
growth, controlling inflation, increasing the attractiveness of
dong-denominated deposits and improving the balance of payments. Part of the
new strategy is to control credit and demand while leaving interest rates at
sustainable levels.-Enditem