Under Circular No20/2010/TT-NHNN issued on September 29, the amount of dong in reserve at banks who lend to farmers in rural areas must make up more than 40 percent of their total outstanding loans.

The new regulation will come into effect on October 1.

The common reserves ratio for non-term deposits and less-than 12-month term deposits at credit institutions (excluding Agribank) is 3 percent. The ratio drops to 1 percent for 12-month-or-more-term deposits.

The compulsory reserves ratio at banks whose loans to the allocated sectors make up more than 70 percent of total outstanding loans, may now equal one-twentieth of the common ratio.

It may equal one-fifth of the common ratio at banks with loans that make up 40 percent to less than 70 percent of total outstanding loans.

Moreover, the central bank is committed to supplying sufficient capital to refinance banks that lend to farmers in rural areas.

The refinancing capital will enjoy prioritised terms and interest rates.

Currently, only Agribank has extended over 70 percent of its outstanding loans to agriculture. If it cuts its reserve ratio to new allowed level, then the bank will have several trillion Vietnamese dong more to provide in loans to farmers.

Interest rates for agriculture have also been cut by several State-owned banks to 12 percent per year.