New ceiling for interest rates on deposits

11/05/2010
Source: VOVNews

The State Bank of Vietnam (SBV) has issued new regulations allowing commercial banks to introduce negotiable interest rates on medium and long-term deposits.

The SBV’s decision on April 13 means that the new interest rate is higher than the previous rate of 10.5 percent/year. Accordingly, the Asian Commercial Bank (ACB) is now applying a rate of 11 percent/year on deposits worth over VND5 million and a rate of 11.6 percent/year on deposits over VND10 billion. The Viet A Bank has announced the rate at 11.9 percent/year, while most other banks have kept their interest rates at around 11.5 percent/year.

The Vietnam Banking Association (VBA) has asked its members to introduce their new interest rates in line with the Prime Minister’s direction and the SBV’s instructions to stabilise the local monetary market.

The VBA said that an interest rate of 11.5 percent/year is suitable at the moment to ensure benefits for both depositors and borrowers. The association also called on its members to stop offering bonuses or promotional gifts to borrowers to maintain stability on the local market. It also requested commercial banks to offer different rates for short and long-term deposits to create the usual curve for interest rates.

In last November, the SBV urged banks to stick to an interest rate of under 10.5 percent/year. Since then, the commercial banks have only raised their rate to a maximum of 10.49 percent/year.

Currently, there is growing concern about the ceiling of interest rates. Many economists discussed whether the ceiling should be removed or not, and if so, when it should be done. The debate heated up when the SBV allowed commercial banks to offer negotiable interest rates on medium and long-term deposits, and most recently, on short-term deposits as well.

However, commercial banks claim they have difficulty raising capital, and that they cannot lower the interest rate on loans because they have to keep the ceiling for interest rates on deposits, which is fairly high at the moment.

The SBV’s recent decision to adjust the ceiling on interest rates will help the banks to reduce their interest rates on loans to 14-15 percent/year in line with the government’s guidance. This move benefits all concerned parties– banks, depositors and businesses. It also demonstrates that the signs of the market growth have been recognised and the right adjustments have been made, vindicating the government’s flexibility in its monetary policies.