THE STATE BANK Of VIETNAM     SOCIALIST REPUBLIC Of VIETNAM
      NO.10/CT-NH1            Independence-freedom-Happiness
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                                     Hanoi, 28 July, 1994

INSTRUCTION TO INITIALLY DEPLOY PROJECT ON CREDIT INTEREST RATE READJUSTMENT

In the past years, Bank credit interest rates have after readjustments been changed in both policies and operation manners. Interest rates were adjusted at times flexibly to inflation index, relationship between demand and supply, and monetary policy has initially positive effects on the mobilization of capital and lending as well as the administration and business of commercial banks.

In order to bring into full play the successful aspects of the policy on interest rates in the recent past with an ultimate goal of perfecting interest rate system in the new stage under the project approved by the Government and on the basis of the prese nt situation, the Governor of the State Bank requests the General Directors, Directors of Commercial banks, Banks for Investment and Development, Gold-Silver and Precious Stone Corporation (hereunder called credit institutions), Directors of provincial, m unicipal branches of the State Bank to initially deploy the project on credit interest rate readjustment by the following ways:

1. Based on the frame and ceiling of applicable loan interest rates announced by the State Bank on Sept. 28,1993 under Decision 184/QD-NH1, credit institutions shall prepare projects to readjust a number of interest rates of deposits and loans with the fo llowing principles:
- a. On the interest rate for capital mobilization
  - a.1 No change for interest rates of retailed demand and fixed savings and deposits of credit institutions, State treasuries under existing provisions.
  - a.2 As regards fix deposits by credit institutions, they may at the demands for capital readjust the interest rates close to retailed savings interest rates of the same term.
  - a.3 In case of needs for capital for specific projects at the request of borrowing units, credit institutions may mobilize capital in form of on-purpose bills along agreed mechanism to ensure capital mobilization acceptance by the borrower and continue d business by banks.
  - a.4 Interest rates for capital mobilization in form of bonds of commercial banks, investment and development banks shall be issued upon periodical projects and applicable from the third quarter of 1994.
- b. On lending interest rates
  - b.1 No change for applicable interest rates for short-term loans.
  - b.2 Increase the present interest rate for medium-term loans of 1.2%/month to 1.7%/month.
  - b.3 Interest rates for capital construction loans under State plan of 8.4%/annum, and maximum interest rate of foreign currency loans of 8.5%/annum (including fee) remained unchanged.
- c. favored lending interest rates applicable for mountain, highland, island areas and Khmer people-concentrated areas shall be subject to a reduction of 15% as presently provided for.
2. Basing on ceiling interest rates and the above principles, the General Directors of credit institutions shall determine specific interest rates that may help mobilize capital, be accepted by the borrowers and ensure continued business activities by cre dit institutions.
3. State Bank's interest rates applicable for credit institution shall temporarily remain unchanged until the issue of new regulations. As for interest rates of deposits in foreign currencies made by credit institutions at State Banks, they shall apply un der decision No.145/QD-NH7 dated 2 July 1994 by the State Bank Governor. Interest rates for foreign currency deposits shall be readjusted monthly on the basis of interest rate changes of the international market, especially of the Singaporean market, in a reasonable manner and close to those of the international market.
4. A long with readjustments of interest rates this time, credit institutions should improve and expand operation network, provide clients with concrete and timely guidance and information to effectively mobilize capital and make lending, save up banking costs, thus creating favorable conditions for further execution of the project on interest rate readjustment.
5. The Department for Economic Research at the central State Bank, the directors of provincial, municipal branches of the State Bank shall take responsibility for following, supervising the execution of readjustments of interest rates by credit institutio ns, ensuring harmony among credit institutions in the same locality, avoiding too great differences or competition that may cause instability in credit activities.

The General Directors, Directors of credit institutions, the head supervisor of the State Bank, the heads relevant units at the central State Bank, the Directors of provincial, municipal State Bank branches shall in their responsibility organize strict ex ecution of this instruction as from 1 August 1994.

for The State Bank Of Vietnam
Governor
Cao Si Kiem
(Signed)