VietNamNet Bridge – There have been signs of the interest rates decreasing on the credit market. However, businesses have warned that they should not expect to see the interest rates decreasing right in the first quarter of 2011.

Dim signs

Since the State Bank of Vietnam took actions to cool down the interest rate shock seen on the market in December 2010, the interest rates have been decreasing slightly. Commercial banks have slashed the interest rates from 17 percent at the peak to 14 percent per annum.

Though banks have still been offering gifts to depositors or launching promotion campaigns, the real interest rates are now not higher than 14 percent.

Analysts said that it is because commercial banks now anticipate the possibility of the interest rates going down in the time to come.

In principle, the interest rates in the interbank market always go up as banks try to borrow money in the market in order to settle short term difficulties. However, contrary to the predictions, the interest rates remain stable, which, in the eyes of analysts, shows that the banks’ liquidity problem has been settled.

The interest rates on the interbank market tend to decrease, especially the interest rates of long term loans. In December 2010, the average interest rate for 6 and 12 month term loans was at 13.5 percent per annum. Meanwhile, in the first week of 2011, the interest rates of the long term loans decreased sharply to below 13 percent per annum. Especially, the interest rate of 12 month term loans dropped to 11.6 percent on January 7.

The signs on the monetary market, plus the affirmation by the State Bank that it will take necessary things to cool down the credit market, both have made people believe that the interest rates will go down.

Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, also believes that the interest rate will decrease after the first quarter of 2011.

However, analysts say that the signs of interest rate decreases remain dim. The targeted inflation rate for 2011 is seven percent, which means that the deposit interest rates should be about 10-12 percent.

Obstacles and advantages

Experts from securities companies think that the interest rates in the first quarter of 2011 will remain as high as in late 2010, but the interest rates will begin going down from the second quarter of the year.

The National Advisory Council for Monetary Policies also believes that the interest rate will be 14-17 percent (deposit and lending interest rates) in the first quarter, then decrease to 12-14.5 percent in the second and third quarters.

The biggest obstacles to the interest rate decreases are the liquidity problem of banks and the inflation rate.

In 2010, the inflation rate reached a two-digit level. In 2011, the targeted inflation rate is seven percent. However, the inflation will not decrease immediately in the first quarter of 2011, because the prices always go up in the Tet months.

Meanwhile, the Government has decided that the GDP growth rate in 2011 needs to reach 7.75 percent. In order to obtain such a high growth rate, Vietnam will need many policies to support the growth, and the policies could be the sources of high inflation.

Besides, the banks’ liquidity will also be a factor that decides the interest rate performance. Vietnamese banks have been living on capital mobilization and lending. Short term deposits always account for a big proportion in the total mobilized capital, while long term loans are always on high demand. Therefore, banks may face a liquidity problem, which will force them to raise interest rates

Le Khac