The central bank said on Thursday September it would not raise the compulsory reserve ratio banks must keep aside because banks still have insufficient funds to meet demand for loans. “Now is not the time to apply that instrument because the funds raised by banks so far are still less than the demand banks need to meet,” Phung Khac Ke, deputy governor of the State Bank of Vietnam, told Reuters.
Banks plan to raise deposit rates this month to lure more funds for huge infrastructure projects, but bankers said they were concerned the drive would be less efficient if the central bank increased the reserve ratio.
“The credit growth in the past months has been lower than the target,” Ke said. If banks did not raise rates to draw more money, “there are possibilities that it would be difficult to meet the funding demand in the near future”, he said.
The central bank set a target of 25% credit growth this year to ensure the economy expands 8.5%.
Banks in HCM City, Vietnam’s commercial hub, saw outstanding loans in the first eight-months of this year rising 19% from the end of 2004 to 160 trillion dong ($10.1 billion), state media quoted a central bank official as saying.
While having to lend more to development projects, banks also face a dilemma as they also have to help control inflation, Ke said.
The government initially aimed at keeping inflation at 6.5% this year, but economists say it will end the year higher. Inflation in August was already 6.0% higher than in December.
The central bank forecast inflation this year will be between 7.5% and 8.0%, below last year’s 9.5%.
Ke said banks faced fund shortages partly because government bonds issued so far this year have annual coupons higher than bank interest rates.
The government offers 8.6% per year for its latest 5-year bond, compared with a rate of 8.16% on a 12-month savings account at the state-run Vietcombank or Agribank, two of Vietnam’s five key lenders.
Under an agreement reached last month, state-run banks can offer a maximum 8.4% on 12-month deposits. Vietcombank and Agribank have yet to change their rates.
“From now until the end of the year, interest rates will not face any huge fluctuation thanks to the preparation by banks,” Ke said.