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Banks want interest rate ceiling removed, central bank says ‘no’   2009-09-10 - Viet Nam Net

Commercial banks have asked for the removal of the ceiling interest rate scheme and the application of the negotiation-based interest rate scheme. However, the State Bank of Vietnam does not concur.


The ‘interest rate war’ lasting several months now has pushed deposit interest rates up to nine percent on 12-month term deposits. Many banks have to mobilise capital at the interest rate of over 10 percent if counting bonus interest rates or gifts.


Commercial banks now have to offer high interest rates in order to attract capital; people are currently being drawn to more lucrative investment channels.


Most recently, the Bank of Investment and Development of Vietnam (BIDV) has issued five-year certificates of deposit with the high interest rate of 10.5 percent per annum, which is equal to the ceiling lending interest rate (the currently applied basic interest rate is 7 percent, which means that the ceiling lending interest rate is 10.5 percent, or 150 percent of the basic interest rate).


Even though they have raised deposit interest rates, banks cannot raise lending interest rates accordingly, because the lending interest rate is now capped at 10.5 percent. As such, the minimal margin between deposit and lending interest rates has made banks suffer.


Bankers say that the margin must be three or four percent to bring profit to banks, while the actual margin now, according to Dr Nguyen Thi Mui from Vietinbank, is just two percent or less on average.


Therefore, banks have asked for the removal of the ceiling lending interest rate and asked to be allowed to lend at negotiated interest rates, enabling them to make adequate profit.


Mui said that the ceiling interest rate scheme was useful in 2008, when the national economy was uncertain and interest rates fluctuated heavily. However, as the situation has improved and the national economy needs huge capital in the recovery period, it is now time to think of removing the ceiling interest rate to apply the negotiation-based interest rate scheme.


Other bankers also said at recent forums on the monetary policy in the post-economic downturn period that it is now the time to remove the scheme to create more favourable conditions for banks’ operations.


However, the State Bank does not agree. Director of the Monetary Policy Department under the bank Nguyen Ngoc Bao said that the ceiling interest rate scheme is in line with articles of the Civil Code and serves the implementation of the tasks of controlling inflation and supporting economic development. 


Bao stressed that in the post-economic downturn period, during which high risks will continue to exist, the application of the basic interest rate scheme is suitable.


Meanwhile, Chairman of Vietcombank Nguyen Hoa Binh also identified positive points of the ceiling interest rate scheme. If the lending interest rate is curbed at a low level, this will encourage investment and help reduce difficulties of businesses.

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