To:- General Managers of commercial banks

- Managers of State Bank branches in provinces, cities

On 2 July 2010, Vietnam Banks Association issued the letter No. 94/HHNH regarding the fact that commercial banks had agreed to keep reducing interest rate of mobilization and lending in Vietnamese Dong that is in line with Resolutions of the Government and objectives, solutions of managing monetary policy of the State Bank of Vietnam. In order to facilitate commercial banks to carry out the united reduction of interest rate, besides the active, flexible and cautious management of monetary policy; the State Bank of Vietnam hereby requires commercial banks and State Bank branches in provinces, cities as follows:

1. General Managers of commercial banks shall correctly implement the contents agreed upon between members of Vietnam Banks Association about the reduction of interest rate applicable to capital mobilization in Vietnamese Dong under the Letter No. 94/HHNH.

2. Managers of the State Bank branches in provinces, cities shall be responsible for inspection, supervision over the reduction of interest rate applicable to Vietnamese Dong mobilization of commercial banks (branches) in the locality in line with the content agreed upon by and between Members of Vietnam Banks Association; immediately applying necessary measures and within their competence, dealing with General Managers of commercial banks, Managers of commercial banks branches who violate agreed contents regarding interest rates, at the same time, timely making report on settlement result to Governor of the State Bank of Vietnam

To: The Governor of the State Bank of Vietnam

With a view to implementing the Resolution No. 18/NQ-CP dated 6 April 2010 and the Resolution No. 23/NQ-CP dated 7 May 2010 of the Government and conclusion of SBV Governor at the meeting with several Commercial Banks (CB) on 25 June 2010 on continuing to gradually reduce market interest rate surface; on 29 June 2010 and 1 July 2010 in the North and the South, Vietnam Banks Association held a meeting with leaders of the rest Commercial Banks and Finance Companies to deploy the above direction of the Government and State Bank.

At the meeting, all member organizations realized that: macro-economy in the first months of the year was relatively stable, of which GDP’s growth was 6.1%, the consumer price index increased slowly and reached the ratio of 4.78%; monetary market experienced positive changes, growth speed of mobilized fund source of the entire industry increased higher than that of debt outstanding; SBV managed the open market flexibly, interest rates in inter-bank market decreased, etc. This is an opportunity and favourable condition as well for banks to reduce interest rates of mobilization and lending. Therefore, all member organizations of VBA have highly agreed with the policy of gradual reduction of market interest rate surface under the direction of the Government and State Bank.

1. For lending interest rate

Commercial banks shall base on their “health”, conditions of each borrower to step by step reduce interest rates in line with capital balance of the banks. Especially for 3 subjects of customer stipulated in Resolution No. 18, those are agriculture, rural area, export enterprises, small and medium production enterprises, then the lending interest rate applicable to them shall be lower than the interest rate applicable to other subjects in order to gradually reach the target directed by the Government, the lending interest rate applicable to such 3 subjects shall be 12% per annum in the last months of the year.

On 1 July 2010, some CBs reduced the lending interest rate, especially for borrowers being export enterprises, some banks have reduced the interest rate to 12% per annum, even some banks have applied the lending interest rate lower than 12% per annum.

2. For deposit interest rate

In order to have basis for reducing the lending interest rate, banks have agreed to reduce the mobilization interest rate to 11% per annum (fluctuation band:+0.2% per annum) since 5 July 2010. The mobilization interest rate mentioned above is the actual interest rate which is publicly applied by CBs, not added any forms of giving direct bonus in money, interest rate (except for promotion programs which have been and will be permitted by Vietnam Trade Promotion Agency).

In order to reach the mobilization interest rate of 10% per annum proposed by the Government, CBs have also agreed with the estimated schedule of reducing the mobilization interest rate as follows:

- Trying to reduce the mobilization interest rate to 10.5% per annum in August 2010

- Trying to reduce the mobilization interest rate to 10% per annum in September 2010.

3. However, in order CBs to implement consistently the mobilization interest rate and lending interest rate in accordance with the above schedule, Member Organizations of VBA propose the SBV:

3.1. To continue to manage the open market in more flexible manner. At the meeting, some CBs informed that for 2 recent weeks, SBV has shortened term and reduced transaction volume in the open market that makes some CBs which temporarily lack capital encounter so many difficulties. According to Vietnam Banks Association, at this time, SBV should prolong or maintain the transaction term (28 days) and increase transaction volume in the open market to satisfy capital demands of commercial banks which temporarily lack capital, then such CBs shall have condition to reduce their mobilization interest rate to 11% per annum.

3.2. Regarding conditions for refinancing of SBV: some banks also said that for CBs which are currently applying for refinancing by pledging credit files, SBV requires them to make report on daily status of mobilization and lending, delegates officers to such banks for supervision, ect, therefore, CBs which want to apply for refinancing often feel worried. So, VBA would like to request SBV to consider again above conditions of refinancing in order to facilitate CBs to access fund source of SBV more easily.

3.3. Reconsideration of SBV’s regulations: CBs are not permitted to mobilize in the market 2 in excess of 20% of capital mobilized in the market 1. Although at present, banks have reached this ratio, but due to this regulation, some banks with redundant funds are unable to lend to capital lacking banks, that makes capital lacking CBs return to the market 1 by pushing up the mobilization interest rate in the market 1 to attract capital. As a result, SBV is required to reconsider the above regulation in the direction of increasing this ratio by 30-40% or stipulating a specific ratio for each type of CBs which have different scales, then should have different ratios between the market 2 over the market 1, the application of a common rate to different scales of banks and finance companies should not be permitted.

3.4. To consider issuing a document on the ceiling interest rate applicable to VND deposit of economic organizations, social organizations as stipulated for foreign currency deposits of economic organizations, because currently some of these organizations have big fund source, and they don’t invest in production, business, but try to "bargain" to deposit their money with high interest rate at the banks (right at this time, some enterprises which have tens billion to 100 billion dong are making bargain with the bank to deposit and ask for the interest rate of 13% per annum) while they are asking the banks for loans with low interest rate. This is an unreasonable thing, therefore, Vietnam Banks Association would like to propose SBV to consider issuing the document on ceiling interest rate of VND deposit mobilization applicable to economic organizations, social organizations, in the short term for State owned economic organizations, social organizations in order to stabilize the monetary market and encourage enterprises to use their capital for production, business purpose, instead of depositing their capital at banks and asking for high interest rate.

3.5. Besides, member organizations of VBA also propose as follows: for joint stock CBs, their BoD shall be the one which decides business policies of the bank, therefore, we propose SBV to organize a meeting, inviting all Chairmen of BoD of CBs to attend to thoroughly grasp guidelines of the Government and of SBV on the necessity of reduction of interest rate in the current circumstance, that facilitates General Managers of commercial banks to smoothly implement guidelines, regulations of SBV.

3.6. To propose Ministry of Finance to continue reducing the interest rate of Government bond auction to facilitate banks to attract mobilized capital

Above is the result of the meeting of Vietnam Banks Association and member organizations in the South and the North to deploy the guideline of reducing the interest rate surface, Vietnam Banks Association would like to report the Governor of the State Bank for your knowledge and request SBV to make further consideration of proposals of member organizations at the meeting to facilitate commercial banks to consistently implement the reduction of mobilization and lending interest rate in accordance with the direction of the Government and of State Bank.

Sincere thanks.