Hard work to close banking loophole

On September 23 and 27 the Vietnam Banks Association (VNBA) held meetings proposing member banks in Hanoi and Ho Chi Minh City to strictly observe central bank regulations on 14 per cent, per year ceiling interest rates.

The VNBA wants a consensus among member banks about Instruction 02’s implementation on deposit rate inspections, according to VNBA expert Phi Dang Minh, who was former deputy head of State Bank’s Foreign Currency Management Department. 

Reality shows that two weeks after enactment of central bank’s Instruction 02, some unusual signs arose in the market such as some banks applied the ceiling interest rate of 14 per cent per year towards one-week or even one-day deposits.

Minh said banks did not violate the law when applying such rates.

A Monetary Policy Department representative said banks dodging the ceiling interest rate regulations to lure deposits showed that they faced liquidity pressures. However, current regulations need to be reviewed to impose sanction measures on those banks.

In fact, since the birth of Instruction 02 capital flows ran from small banks into bigger banks with well-established reputations.

Echoing the idea, VietinBank chairman Pham Huy Hung assumed lowering the deposit rates did not make money run out of banks and the capital flows would continue going into banks in later months of 2011 since mainstream investment channels such as the stock market were less charming on the back of uncertain economy.

To restore the ceiling interest rate discipline, in the short term the VNBA proposed member banks strictly abide by central bank ceiling interest rate regulations. Besides, the central bank needed to take measures towards banks dodging the law and inform these punishments publicly to stop other banks from following suit.