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>> Businesses bemoan loan-shark interest rates
>> Tight credit, high interest hurt businesses
>> Central bank to crack down on interest rate abuses
Vietnam is finding ways to lower deposit rates in order to drag lending interest rate down in an effort to stimulate lending.
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| High lending interest rate have resulted in high bank deposits |
The State Bank of Vietnam (SBV) held a meeting in Hanoi on August 26, with officials from 12 banks across the country to discuss measures designed to engineer lower interest rates.
Almost all bank officials admitted that they possessed capital but were finding it difficult to boost lending.
“We don’t lack capital but are having to bear deposit interest rates of up to 17.5% per year for one-month deposits, and 15%-16% per annum for deposits from two to three months. We can’t reduce deposit interest rate now for fears that our clients may withdraw their money to deposit it in other banks,” an unnamed bank general director said.
An official from a small bank explained that they had reasons for maintaining high savings rates. “When some clients agree to borrow at high rates, we have to raise deposit interest rates for a certain period to mobilise capital for our deals. This is expected to help fulfil our profit targets for the year. We also have to set aside some money for fear that SBV may further increase the cash reserve ratio.”
It has been proven that lower deposit interest rates could foster a decrease in lending rates. For this reason, the SBV should orchestrate the move.
Inflation rate
Banks complained that they are finding it difficult to lower deposit interest rate to 14% according to the SBV’s guidance due to the inflation rate.
In order to attract deposits, banks must apply a deposit interest rate higher than the inflation rate. However, bankers find it difficult to predict a varying inflation rate.
Cash redundancy
SBV Governor Nguyen Van Binh said that the bank would take economic measures to balance the demand for capital, use existing available and foster a decrease in interest rate instead of printing more money.
Binh said the regulation that caps inter-bank capital mobilisation at only 20% of a bank’s deposit is blamed for banks sitting on high savings. He suggested increasing the figure by 1% per year.
“More efforts would be made to curb credit growth in the time to come,” he emphasised.
