Interest rates would be reduced by 1 per cent over the next few days, said Governor of the State Bank of Viet Nam Nguyen Van Binh.
Binh made this announcement on Tuesday at the monthly Government meeting held in Ha Noi.
He said that since the fourth quarter last year, lending interest rates had been reduced and production sector loan rates had been slashed to 17 or 19 per cent per year.
Before last quarter, lending interest rates were set at about 22 to 25 per cent per year depending on the terms of the negotiation and purposes of the borrowers.
Binh said it was the right time for the State Bank to lower the ceiling deposit interest rate by 1 per cent, which would force credit institutions to follow suit. The central bank will also provide a 1 per cent reduction for re-financing and open market operations. If the inflation rate is kept below 10 per cent this year, Binh promised that interest rates would be adjusted to under 10 per cent per year, affirming that the central bank's monetary policies would focus on helping businesses access loans more easily.
Governor Binh said that many banks had borrowed money from the central bank through re-financing methods to ensure their liquidity.
In the past few months, many commercial banks had bought Government bonds, showing that banks' liquidity has improved significantly.
The State Bank might offer longer, three- to six-month terms during the next financing period, he said.
In the first two months of the year, the banking sector has experienced a significant decline in interest rates on the inter-bank market. Last month, the rates stood between 7 and 14 per cent per year for overnight and one-month terms, respectively.
He also said that Viet Nam now has nine poorly-performing credit institutions and banks which accounted for 10 per cent of the market shares. Those bank are now being supervised by the central bank in order to create plans for their restructuring.
Those credit institutions now occupy only 6 per cent of the market share after the first step of the restructuring process, and they would not affect the entire banking system. Thanks to a stable foreign currency exchange, the central bank has been purchasing a huge amount of foreign currency in order to balance the market. This would also help raise the amount of national foreign currencies held in reserve and create a cashflow of Vietnamese dong for the market.
At the end of last year, the country's foreign currency reserves increased by around 50 per cent compared with early 2011. In the first two months of the year the reserves surged by an additional 20 per cent.
Binh asserted that the monetary policies being applied to the banking sector would act as a foundation for the development of the domestic stock market. Thus, when interest rates are reduced, investors would pour money into the securities market.
In response to the Ministry of Construction's proposal to establish a bank for construction, Binh said that it would be unnecessary to set one up, since all domestic banks have been lending to the real estate sector.
However, the State Bank is co-operating with many international organisations, including the Asian Development Bank, to establish a similar model for restricted products to be monitored closely, he added.