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Banks look to absorb credit losses   2008-09-14 - VIR

VietNamNet Bridge - Local banks are trying to lower mobilising rates to stop bleeding credit service losses. VP Bank general manager Le Dac Son said with rates of 17.5-18 per cent per year banks were struggling to turn a profit.

“At the moment, most local banks are gradually reducing mobilising rates,” said Son. From the beginning of August, 2008, local banks started the first phase of a mobilisation rate cut. After a month on the move, interest rates have gone down by approximately 1 per cent for all-term deposits. Since the beginning of 2008, local banks have been drawn into three races to raise rates. From June 10, 2008 through to July rates moved to 18.5-19 per cent per year.

From June 10, the State Bank started interest rate management in relation to its monthly base interest rate. Accordingly, mobilisation and lending interest rates are not permitted to exceed 150 per cent of the base rate set at 14 per cent since June 10.

Son added that if by the end of September, local banks could cut the rate by 1 per cent they would break-eve, and have enough to cover the mobilisation rate plus operational costs including the reserve requirement - currently set at 11 per cent.

Hoang Diem Thuy, Bank for Foreign Trade of Vietnam’s (Vietcombank) domestic treasury director, said that a cut was conducted with caution due to fears of a mass withdrawal of depositors.

“On one hand, we have to closely watch the response from depositors and on the other hand, we have to reduce in tandem with other lenders, otherwise our customers could shift money to someone else,” said Thuy.

A source from Asia Commercial Bank (ACB) - the fifth lender on the market, said from August 1-18, bank deposits decreased by VND1,000 billion ($62.5 million) as a result of a rate cut from the beginning of August.

“Fortunately, the downtrend stopped from August 19, otherwise we would have to raise the rate again. It would take a long time to lower the rate while still retaining the depositors,” said the official.

The official added that the bank had been bearing 1-1.5 per cent losses for each lending amount since July, 2008.

Nguyen Thi Kim Thanh, the State Bank’s Monetary Policy Department vice head, said that the authority was expecting local lenders to lower rates.

Son said that if everything went to plan, from November local banks could start a gradual reduction. Due to unprofitable lending, credit growth in banking has been slipping since June with monthly increases of less than 1 per cent.

However, financial experts said that reducing interest rates was not going to work while trying to stave-off Asia’s highest rates of inflation.

“Maybe, the State Bank is still in a dilemma on how to control inflation and push economic growth,” said a financial expert.

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