Thuan Binh rice paper factory is in full swing in southern Tien Giang Province. The National Financial Supervisory Committee has suggested a further cut in the deposit interest-rate cap to 7 per cent to bring down lending rates to around 10 per cent. — VNA/VNS Photo Dinh Hue

HCM CITY (Biz Hub)— The National Financial Supervisory Committee has suggested a further cut in the deposit interest-rate cap to 7 per cent to bring down lending rates to around 10 per cent.

"We now have enough conditions to further slash both lending and deposit interest rates," committee chairman Vu Viet Ngoan said.

He said if the deposit interest-rate cap was reduced to 7 per cent, the move would not affect the banking sector's liquidity since depositors would continue to have a positive real interest rate.

Ngoan also said the move would also not affect the foreign-exchange rate as the country's foreign-currency reserves were now big enough to intervene in the foreign-exchange market.

"In addition, a further cut in the lending interest rate will not sway the banking sector's business results because the gap between the deposit and lending interest rates is still rather large," Ngoan said.

He also noted that the Consumer Price Index (CPI) in the first four months of the year increased by 2.41 per cent, the lowest level in four years.

Meanwhile, demand-pull inflation and cost-push inflation were weak since the country's aggregate demand was low and the price of raw materials had not increased.

This means that the year's inflation rate would be around 4.5 and 5 per cent, according to Ngoan.

With such an inflation rate, the deposit interest rate could be further cut while still ensuring a positive real interest rate for depositors, Ngoan said.

"When the deposit interest rate falls, we will be able to reduce the lending interest rate to 10 per cent per year, and even to a lower level in some prioritised sectors such as agriculture, rural areas and production activities for export," he added.

Meanwhile, according to a recent report issued by the committee in April, production activities at domestic enterprises were still sluggish because of high input costs, slow consumption and high inventory. Current interest rates are still too high for local businesses.

With such a tough economic climate for the business community, the committee said the lending interest rate should be cut to 9 or 10 per cent per year so that companies could take out loans and increase their production activities.

In addition to interest-rate reduction, the committee also proposed several measures to help the country achieve a Gross Domestic Product growth rate of 5.5 per cent this year.

The committee said that bad debts needed to be settled and that more preferential credit packages should be given to companies in the construction and real estate sectors.

As for fiscal policy, the committee said it would accelerate the disbursement of development investments to improve aggregate demand.

Investment priority should be given to projects that are due to be finished this year, the committee said.

Banks to stop lending on securities

More than 95 per cent of domestic banks plan not to provide new loans for securities investment, according to a recent State Bank of Viet Nam report on economic outlook for 2013. Forty five per cent will narrow credit in this area this year,

Financial news website cafef.vn quoted the report as saying that commercial banks would concentrate capital on lending into important commodity sectors to foster economic growth.

According to the source, about 87 per cent of banks won't increase credits for the real estate sector and 41 per cent will reduce property lending.

Up to 90 per cent of lending institutions expect to maintain and increase credits for areas prioritised by the Government, including agriculture and rural development, export, support industries and small and medium-sized enterprises. — VNS