The State Bank of Vietnam has the margin to further cut dong deposit
rates to 7 percent and lower lending rates to below 10 percent, the
National Financial Supervisory Commission (NFSC) recently revealed.

In a study on the country’s macro-economic performance in the first
quarter of 2013, the commission found that with domestic consumption and
credit demands remaining weak, this year’s inflation is likely to
remain under 7 percent.

This is further evidenced by average
statistics for the past decade showing that inflation in the first
quarter often accounted for roughly 40 percent of the whole year’s rate.

The commission observed that in the first quarter, bank
liquidity generally remained stable and interest rates tended to fall in
tandem with inflation movements; yet the rate of deflation did not
match up to businesses’ expectations.

Slow credit growth in the
manufacturing sector reflected weak capital absorption of the economy,
the report noted. As of March 21, total lending increased only 0.03
percent, while deposits rose 3.86 percent from the end of 2012.

Government bonds are still an attractive investment channel for banks with their attractive yields and apparently low risks.

However, with non-performing loans still posing major obstacles for
enterprises to access bank capital, the credit growth target of 12
percent this year is unlikely to be achieved.

According to the NFSC, the exchange rates remain stable due to the trade surplus and improved short-term investments.

The NFSC further recommended the government to give more support to
enterprises in order to boost production and business by cutting
interest rates, reducing corporate income tax to 20 percent as well as
considering cuts to value added tax (VAT).

The commission
highlighted the need to accelerate the process of dealing with
non-performing loans, explore the possibility of starting a debt asset
management company in the near future, and actively launching a
preferential credit package to support the construction sector and the
real estate market.-VNA