The State Bank of Vietnam (SBV) has decided to reduce the mandatory reserves maintained by commercial banks engaged in agricultural lending.

The new decision aims to encourage further lending for agricultural activities. State Bank Governor Nguyen Van Giau said at a conference held in HCM City last week to launch new credit policies for agricultural and rural development.

Giau said that the decision would take effect next month.

Banks that have at least 40 percent of their outstanding loans given for agricultural production will be allowed to reduce their reserves from the current 3 percent to 1.5 percent.

Those that have agriculture loans accounting for 60 percent or more of their total lending need to maintain reserves of just 1 percent.

The Vietnam Bank for Agriculture and Rural Development (Agribank) will benefit from the new decision as its agriculture lending rate is already up to 70 percent.

Since compulsory reserves attracted no interest, reducing them would help banks cut capital costs and facilitate reduction of lending rates as well, Giau said.

He pledged that the central bank would use part of the money that it pumps into the market annually to help bank engaged in agricultural lending source long-term capital.

Under Decree No 41 issued recently by the Government, the amount of bank loans farmers and fishermen can get without collateral has increased five folds.

Those benefiting from the decree include: households and businesses in rural areas; farm owners and cooperatives in rural areas; organisations and individuals providing services for cultivation, animal husbandry, consumption and export of agricultural, forestry and fishery products and salt; and firms processing farm produce.

It also applies to enterprises involved in industry and trading and provision of non-agricultural services based in rural areas.

All the above-mentioned entities can borrow between 50 million VND (2,600 USD) and 500 million VND (26,000 USD) without collateral. These sums are five times higher than previous limits.

Firms engaged in agriculture, forestry, fishery and salt production can get bank loans of up to 50 million VND while cooperatives and farm owners can access loans worth 500 million VND.

Governor Giau also revealed at the conference that the Government was considering a pilot agricultural insurance programme by relevant ministries and other agencies.

The programme might provide financial support to farmers to help them pay premiums, he said.

Priority would be given to poor farmers, organisations and individuals engaging in large-scale production of main crops./.