July 7 (Bloomberg) -- Vietnam’s commercial banks should reduce interest rates on outstanding loans and help businesses struggling in a slowing economy, the central bank said.
Lenders must cut rates on existing loans to companies to below 15 percent, Governor Nguyen Van Binh told a banking conference in Hanoi today. Credit growth slowed to 0.76 percent from end-2011, the central bank said.
Vietnam’s economy expanded 4.66 percent in the three months to June from a year earlier, and Deputy Prime Minister Vu Van Ninh said today it may miss its 6 percent target this year amid a deepening debt crisis in Europe and a growth slowdown in China. Businesses have struggled to access credit, even as the monetary authority cut interest rates and directed lenders to prioritize lending to strategic sectors such as small enterprises.
“We should aim to help companies that still have the potential to develop,” Binh said today. Commercial banks “need to be determined and quick in reducing lending rates to help companies.”
Lenders may not be able to cut rates on loans immediately, as the central bank reduced borrowing costs faster than expected, Le Hung Dung, chairman of Vietnam Export Import Bank, said at the conference today, in response to the governor’s instruction.
The government pledged last month to pursue “flexible and cautious” monetary policies with “reasonable” levels of credit growth to help businesses hurt by lending rates. At the same time, the country needs to speed up restructuring of weak commercial lenders and banks’ bad debt, the government has said.
Bad debts accounted for 4.47 percent of total lending as of end-May from the end of 2011, the central bank said today. Banks are facing difficulty lending as the economic slowdown affects companies and crimps loan demand, the bank said.
Vietnam’s economy is projected to stabilize further in 2012, the International Monetary Fund said in a note yesterday. Still, “in addition to a slowdown in export markets, there is a risk that pressures on prices and the exchange rate could resurface, if the authorities’ commitment to stabilizing the economy and safeguarding the financial sector is perceived as waning,” it said.
To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at firstname.lastname@example.org