HANOI: Vietnamese banks have withdrawn funds from overseas banks to reduce their exposure to the US financial crisis, shifting the funds to banks in Singapore and Hong Kong, the Vietnamese government said.

Prime Minister Nguyen Tan Dung, in a separate statement, also urged the central bank to pursue flexible policies on interest rates, the currency and foreign reserves to ensure liquidity in the banking industry.

Governments, central banks and regulators globally are scrambling to protect their markets from the financial tsunami sparked by last month's collapse of US investment bank Lehman Brothers.

The impact has been felt mostly in the United States and Europe, but a number of countries in Asia have sought to assure investors that their banking systems are sound.

The government said in a statement that the Vietnamese banking sector was operating normally, and that its banks didn't have any direct connection with troubled US banks.

In addition, the businesses of two Vietnam-based banks fully owned by HSBC Holdings and Standard Chartered, foreign banks' branches and all joint venture banks in the country are stable, the statement said over the weekend.

In a statement published by the central bank yesterday, the prime minister urged the central bank to pursue a tighter monetary policy but maintain flexibility in its management of interest rates, exchange rates and foreign reserves to ensure liquidity.

Rates on Vietnam's overnight interbank market loans were stable at 14 percent, and the lending rates in domestic markets were also stable, the statement cited the central bank's Monetary Policy Department as saying in its reports.

But the average rate for three-month interbank loans edged up to 17.68 percent on Monday from 17.5 percent a week ago on stronger demand, interbank rate fixings compiled by Reuters show.

"Demand for short-term loans is strong, while long-term loans are not preferred, as borrowers expect lending rates to ease," a dealer in Hanoi said.

The central bank has raised the interest rate it pays to banks for their compulsory reserves against dong deposits from Oct 1, increasing it to 5 percent from 3.6 percent in September, to reduce lending rates.

Reuters

(HK Edition 10/07/2008 page2)