By Nguyen Dieu Tu Uyen
Nov. 20 (Bloomberg) -- Vietnam cut the benchmark interest rate for the third time in a month to protect the economy against the global financial crisis.
The central bank reduced the key rate to 11 percent from 12 percent, effective tomorrow, according to an e-mailed statement from the State Bank of Vietnam. Policy makers also trimmed the refinancing rate to 12 percent from 13 percent, and the discount rate to 10 percent from 11 percent.
Vietnamese companies have complained that the highest benchmark rates in Asia after Pakistan had made it difficult to turn over a profit and increased their risk of bankruptcy. Signs inflation is slowing may allow the government to ``manage rates in a declining trend,'' the statement said.
``We need to be more concerned now about the economic slowdown than inflation, which has been successfully contained,'' said Ly Xuan Hai, chief executive officer of Asia Commercial Bank, Vietnam's biggest listed company. ``The business community will welcome the news and commercial banks would follow suit by lowering their rates soon.''
ACB will cut its maximum lending rate to 16.5 percent from 18 percent, Ho Chi Minh City-based Hai said. Commercial banks can only charge as much as 150 percent of the key rate.
The State Bank will probably reduce its key rate to 10 percent by the end of the year if the global economy doesn't improve, Hai said.
Inflation Fight
The Southeast Asian nation had to raise interest rates to as high as 14 percent earlier this year to battle inflation. Annual inflation slowed for a second month in October to 26.7 percent, from 27.9 percent in September.
On a monthly basis, prices fell 0.2 percent from September, the first drop since March 2007. The Hanoi-based General Statistics Office may release November figures next week.
``Inflation has already come down dramatically on a monthly basis, and it will stay down,'' said Adam McCarty, chief economist of Mekong Economics Ltd. in Hanoi. ``They may even have overshot in the fight against inflation, with these orders to banks to slow credit growth and trying to control the price of basic commodities.''
Lower interest rates will make it easier for companies to borrow money, helping Prime Minister Nguyen Tan Dung to meet his growth target. The government forecasts expansion of 6.7 percent this year, from 8.5 percent in 2007.
Bankruptcies
The State Bank also reduced the amount of compulsory reserves that banks have to set aside by 2 percentage points to 8 percent. Bank for Agriculture & Rural Development, the nation's biggest lender by assets, and other rural financial institutions, will only be required to keep 5 percent aside.
The central bank asked commercial lenders to prioritize loans to agricultural businesses, especially rice farmers and exporters or importers of essential goods, small- and medium- sized companies, and production and property projects.
``These measures are to help banks operate more efficiently, safely and to reduce lending interest rates in order to enable companies to access bank loans easier to develop production and businesses,'' the statement said.
A tenth of Vietnam's 350,000 small- and medium-sized enterprises may go bankrupt in the first quarter as high lending rates wipe out profits, Cao Sy Kiem, president of the Vietnam Association for Small- and Medium-Sized Enterprises, said in an interview this week.
The companies are typically paying as much as 16 percent to borrow money, more than their profit margins of 14 percent, said Kiem, who was governor of the State Bank from 1989 to 1997.
To contact the reporters on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net
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