Increasing VND compulsory reserve ratio will help to curb inflation, but may also cause pressures for banks.
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| Increasing VND compulsory reserve ratio will help to curb inflation, but may also cause pressures for banks |
Duong Thu Huong, General Secretary of the Vietnam Banks Association, said many measures to bring inflation under control, such as adjusting the compulsory reserve ratio, may work. But banks are finding it difficult to gain liquidity with the currently regulated interest rate of 14%, and many customers seek to negotiate a higher rate.
Huong cited one bank official as saying that some businesses have asked her bank for interest rates of 19%. Despite being short on capital, the bank was forced to turn down the deposits.
In the context of high interest rates on VND deposits, raising the compulsory reserve ratio would add pressure for banks, the official said.
Huong also said that some companies who plan to make large deposits are waiting until the compulsory reserve ratio is raised, in hopes that it will force banks to increase deposit interest rates.
Although higher compulsory reserve ratio will raise both deposit and lending interest rates, reducing capital demand and supporting State Bank of Vietnam’s set goal to keep credit growth below 20% this year, the measure should be only applied as a punishment for banks which do not cut down loans for businesses not involved in production, as required, Huong emphasised.
Nguyen Van Giau, Governor of the State Bank of Vietnam, has said previously that the bank will only increase the compulsory reserve ratio if the credit growth is much higher than 20%.
Cao Sy Kiem, member of the National Advisory for Monetary Policies, said raising the compulsory reserve ratio should be only used in case inflation gets out of control, explaining the measure would restrict banks’ capital mobilisation abilities.
