US dollar lending rates remain high despite recent reduction
Source: 25-JUL-2008 Intellasia | Dien Dan Doanh Nghiep
Jul 25, 2008 - 7:00:00 AM Banks' US dollar deposits have declined, along with the predication that US dollar lending rate for businesses could not be as high as previous period. However, according to specialists, the lending rate is still high and unreasonable.

From July 14, South-eastern Asia Commercial Joint Stock Bank reduced the US dollar deposit rate with a term of seven months from 7-8% per annum down to 6.0% a year. Meanwhile, some other commercial banks have tendency to continue lowering by 0.2-0.5% pa slightly in coming days.

However, lending rates of commercial banks remain higher based on the suffering strength of enterprises and the relation between domestic and international monetary markets. Because while US Federal Reserve Department's US dollar interest rate has unchanged at 2.0% a year since April, the US dollar rate of the international market also has stood at low level. Libor and Sibor interest rates are the same. On July 9. Libor interest rate for the 12-month term was recorded at 3.22% pa and six months at 3.0975% pa while six-month Sibor interest rate was 3.274% pa but Vietnamese commercial banks' US dollar deposit and lending rates were higher 2-3 times than the international market's level.

In Vietnam, the highest US dollar deposit rate climbed to 8.0% per annum, and common at 7.0-7.5% pa whereas the lending rate jumped to 10-14% pa or higher.

In line with international and local norms, Vietnamese banks' US lending rate equalled to Libor and Sibor rates with the same term, adding a free of 1.5-2.5% a year. The final lending rate that borrowers have to suffer is too high, which has affected strongly to companies' business and production operation, especially important projects in need of huge US dollar volume to import machines and equipments.

Typically, Vietinbank proposed authorities to reduce compulsory reserve ratio of US dollar deposit whereby commercial banks could lower US dollar lending rate. However, it received a feedback that there could not be to do reduce the ratio due to foreign currency lending growth is still high.

Hoang Duc Cuong, director of Hai Phong City based Kim Anh Joint Stock Co stressed that US dollar interest rate signalled to decline, but the sudden increase in fuel retail prices could push CPI in following months to new highs. By that time, possibly State Bank of Vietnam will hike basic rates. Obviously, US dollar lending rate for companies will not stand at the current level.

While the world's average US dollar lending rate is about 5%, Vietnamese companies still suffer 8-10% pa, even 12% pa. In addition, the US dollar price has increased by 5% against the year early, stated Doan Trong Ly, chair of Aprocimex.