The State Bank of Viet Nam announces an interest rate cut for dong deposits on Tuesday. — Photo vneconomy.vn

HA NOI (Biz Hub) — The annual interest rate cap for short-term Vietnamese dong deposits will be cut from six per cent to 5.5 per cent.

The State Bank of Viet Nam (SBV) made this announcement at its regular monthly meeting here on Tuesday and added that the decision, the second of its kind this year in support of business, would take effect immediately.

The annual interest rate cap for US dollar deposits of one to six months duration will likewise be slashed from one per cent to 0.75 per cent.

The interest rate cap for short-term dong loans granted to the five top-priority industries of agricultural and rural development, exports, supporting industries, small- and medium-sized companies and high-technology enterprises, will likewise be reduced from eight per cent to seven per cent. People's credit funds and micro-finance organisation will be allowed to apply an interest rate cap of eight per cent.

The SBV also decided yesterday to maintain the policy rates for refinancing, discount and overnight loans. Accordingly, the refinancing rate remains at 6.5 per cent while the discount rate stands at 4.5 per cent and the overnight rate remains at 7.5 per cent.

At the meeting, the SBV also reported that as of October 24, the total number of deposits increased by 11.88 per cent, of which dong deposits accounted for 13.17 per cent.

As of October 24, credit growth increased by 7.85 per cent over that of last December, largely because of the Government's top-priority industries. The SBV this year targeted a credit growth of 12 to 14 per cent.

After the SBV's interest rate cut of 0.5 percentage points last March, deposit and lending rates declined by one to 1.5 per cent against that of last December.

As of October 9, dong loans with interest rates of more than 15 per cent represented 4.12 per cent of total outstanding loans, against 6.3 per cent last December. Loans with rates of more than 13 per cent accounted for 11.7 per cent of total outstanding loans, against 19.72 per cent last December.

SBV Deputy Governor Nguyen Thi Hong said bad debts were gradually reduced in the past four months, from 4.17 per cent in late June to 4.11 per cent in late July, 3.9 per cent in late August and 3.88 per cent in late September.

Hoang added that to reduce bad debts to three per cent by 2015, as targeted by the Government, the SBV instructed commercial banks to enhance their risk provisions and use the fund for this purpose to reduce existing and new bad debts.

Nguyen Quoc Hung, chairman of the Viet Nam Asset Management Company, revealed that his company has so far bought VND95 trillion (US$4.46 billion) in bad debts while selling VND3.5 trillion ($164.319 million) in bad debts, thereby exceeding the annual target of VND2.5 trillion ($117.37 million). — VNS