Hanoi  - Vietnam's State Bank Thursday dismissed rumors of planned currency reforms and possible bank failures, one day after it devalued the dong and raised interest rates.

"There will be no change in the money at this time, and no banks will collapse," said Duong Quoc Anh, director of the State Bank's Banking Department. "The Prime Minister has said that there will be no currency change. The State Bank governor has said that no banks are in trouble at all."

After the State Bank raised the prime interest rate from 12 to 14 per cent effective Wednesday, rumors spread among Vietnamese depositors that some banks might be about to fail.

One rumor speculated the government might reissue the national currency while cutting off several zeroes, meaning the popular 100,000 dong (6 dollar) note would become a 100-dong note.

The Vietnamese newspaper People's Police on Thursday quoted State Bank governor Nguyen Van Giau saying the rumors were groundless and "people shouldn't panic."

An inflation rate that topped 25 per cent and a trade deficit that rose to 14 billion dollars through May shook investor confidence and led to worries of a currency crisis or failure of some banks. Stock market and real estate bubbles have also popped in recent months.

Adam McCarty, chief economist at Mekong Economics in Hanoi, said there was reason to believe some Vietnamese banks might fail, but not large or well-established ones.

"What we're talking about here is mainly the smaller and newer joint stock banks that were opened up in the last few years, that got heavily involved in real estate and the stock exchange," McCarty said. "All of them are having trouble now because there's a credit squeeze, and some of them might go to the wall, but then they probably deserve to."

In response to the State Bank's higher prime interest rate, Vietnamese banks such as Oceanbank and SEABank have raised deposit interest rates to over 18 per cent for deposits of a minimum of twelve months. (dpa)