State Bank to use an iron hand

To stabilise interest rates, State Bank has proposed banks not to raise the deposit rate for Vietnam dong to more than 14 per cent, per year. Would banks closely adhere to the requirement, given the current spreading practice of banks negotiating higher rates to lure in customers?

We continue setting close eyes on banks’ application of interest rate policies so as to achieve market and interest rate stabilisation targets. However, it is not easy to address bank interest rate negotiations with customers in a comprehensive manner due to State Bank’s inspection team’s poor personnel amid increasingly sophisticated impingements.

How will the State Bank deal with disobedient banks?

The ceiling annual mobilising rate of 14 per cent is regulated by the State Bank governor and directed towards commercial banks, it is not simply an accord among banks. Therefore, the State Bank will take strong disciplinary measures towards violators.

Is the 14 per cent ceiling rate reasonable amid high inflation pressure by the year’s end?

If the inflation rises to a double-digit level or even hits 11 per cent in 2010, customers still enjoy positive real deposit rates with 13-14 per cent levels. Thereby, it is impossible to push the interest rate to exorbitantly high level of 17-18 per cent per year as some banks did recently.

Customers often have a soaring demand for capital by year-end. Besides, under Circular 19/2010/TT-NHNN banks are only eligible to use up to 80 per cent of their mobilised capital to offer loans. Have these factors driven banks to raise the deposit rate?

Issuing these regulations [Circular 19] was aimed at ensuring banks’ security. Thereby, banks need to obey to limit risks and they should not rush into lending customers as much as possible by year-end period.

Will the 14 per cent ceiling interest rate requirement see lending rates fall?

The lending interest rates will surely fall when deposit rates are kept at no more than 14 per cent, per year. Besides, banks could not disburse their capital with overly high lending rates as most businesses cannot afford such rates.

I expect negotiable lending rates will come at around 17 per cent and even lower, per year.