Vietnam Money-Dong loan demand seen weakening on high rates

HANOI, June 23 (Reuters) - Demand for dong loans in Vietnam is expected to decline in the next three months as businesses and consumers, strained by record high interest rates, start to cut back on spending, bankers said on Monday.

"Companies with good performance on average can make only 20 percent to 30 percent earnings before interest and taxes, so few can afford to pay 21 percent in interest to the banks," an analyst at Habubank in Hanoi said.

"We are seeing a declining trend in new dong loans in the next three months as companies and consumers are forced to delay new projects or purchases," he added.

Most banks this week are charging 21 percent interest on dong loans, the ceiling rate regulated by the central bank, after it raised the base rate for the dong three times since April, taking it to 14 percent as from June 11. The base rate is used by banks to calculate dong loans and deposit rates.

"Some banks have to pay as much as 19 percent per year to raise dong funds from deposits so they have to charge more to stay in business," a banker at a foreign bank in Hanoi said.

The central bank said in a weekly market report obtained on Monday that most banks were now offering 17-18 percent for dong deposits.

A central bank newspaper said on Friday that outstanding bank loans in Vietnam were likely to be 20 percent higher at the end of the first half than a year earlier, but monthly loan growth would slow to 1.22 percent in June.

The central bank did not give the credit growth for the first half of 2007 but loans surged 54 percent in the whole of 2007, so the 20 percent growth so far this year shows a dramatic fall after three rate increases since January by the central bank.

In the foreign exchange market, traders in Hanoi said the dollar was being quoted in the black market at about 17,800 dong on Monday, down from a record 19,600 dong last Friday after the central bank made a rare move to publish its foreign reserves of $20.7 billion.