Several joint-stock commercial banks have also trimmed lending rates to around 16-18 per cent per year, including Sacombank, which yesterday cut its interest rates by 1-1.5 percentage points to 16-18 per cent per year. Lien Viet Bank also cut lending rates to 15-16 per cent, a 1.5 percentage point drop from the bank’s previous rates.

An Binh Bank (ABBank) cut lending rates yesterday by 1-2 percentage points to 17.25-18 per cent. A preferential interest rate of 16.75 per cent per year will be given to the bank’s priority customers and exporters. The Ha Noi-based bank has also allocated VND1 trillion (over US$59 million) for lending to small- and medium-sized enterprises over the next two months.

According to government statistics, the country has 349,000 small- and medium-sized enterprises, of which 163,000 had credit relations with banks.

Many economists believe that banks will make further interest rate cuts as they begin to accumulate capital again following the recent series of money-supply woes. Vietcombank general director Nguyen Phuoc Thanh estimates that domestic commercial banks now had about VND50 trillion (nearly $3 billion) in capital on hand.

The State Bank’s reduction in compulsory reserve ratios this week was expected to free up additional liquidity of nearly VND10 trillion ($595.24 million), and the State Bank has also begun paying back about VND20.3 trillion ($1.21 billion) in compulsory notes to banks.

All told, Thanh figured that banks might have about VND100 trillion (nearly $6 billion) available to lend, with all banks still way off the targeted cap on credit growth for the year of 30 per cent. The State Bank has released figures showing that credit growth for the year through October had only reached 19.6 per cent.

"With more capital, banks are able to lower lending rates ... and help enterprises access credit," said State Bank Governor Nguyen Van Giau. "However, expanding lending does not mean loosening lending criteria, which might cause bad debt and unstable development of the system."

Based on statistics collected from 40 cities and provinces nationwide, only about 10 per cent of business loan applications were being rejected due to such factors as project infeasibility, Giau said.

Briefly commenting on State Bank of Viet Nam moves to improve capital liquidity in the domestic economy, Ayumi Konishi, country director for Viet Nam of the Asian Development Bank, said, "Given the rapid improvement in inflation figures ... and in the face of what is happening in the global economy, as well as the difficulties being felt by Vietnamese banks and small- and medium-sized enterprises, it was considered appropriate to give some encouragement to the domestic economy." — VNS