Interest rates on State-subsidised loans extended through the Vietnam Development Bank or the Bank for Social Policy for export or investment purposes will be increased from 9.6 percent to 11.4 percent per year for Vietnamese dong-denominated loans and from 6 percent to 6.6 percent for loans made in US dollars, under a new regulation by the Ministry of Finance.

Duong Duc Minh of the ministry's Department of Banking and Financial Institutions said the increase was due to the State Bank of Vietnam's recent hike in the prime rate from 8 percent to 9 percent.

"The increase in the prime rate widened the gap between State-subsidised loans for investment and export projects and commercial bank rates," Minh said.

Lending interest rates on Vietnamese dong-denominated medium- and long-term loans were now averaging 14.5-16.5 percent, and even a number of sectors enjoying priority rates, such as agricultural and export enterprises, were having to borrow at 13-15 percent per year.

The ministry had also seen yields for Government bonds rise to 10.7 percent, causing the sale of bonds to drop off last month to only 400 billion VND (20.5 million USD), Minh said.

He also said that the increase in State-subsidised interest rates also reflected the overall trend of lending interest rates on the market, while the high rates on US dollar-denominated loans would reduce pressure on the dollar supply.

If market rates continued to rise next year, the ministry would make further adjustments to the subsidised rates as required under Vietnam's commitments to the World Trade Organisation, he added.

The State has allocated about 4.5 trillion VND (230 million USD) next year from the State budget to fund interest subsidies, an increase of 800 billion VND (41 million USD) over this year's rate, according to ministry figures./.