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Information about interest rate reduction raises worries
Denying the information about slashing the ceiling deposit interest rate to 13 percent, but the State Bank of Vietnam has affirmed that the interest rate would be lowered in the time to come. However, experts have warned that the move would do more harm than good.
Dr of Economics Vu Thanh Tu Anh said that Vietnam should only think of easing interest rates when it is sure that the macro economy gets stable.
“The easing of the interest rate to 12 percent would not bring benefits, but the move may even do harm to the banking system,” Anh said.
It is obvious that people cannot enjoy real profits from their deposits, when the inflation rate is 20 percent, but the deposit interest rate is 12 percent.
Moreover, when a lot of banks are facing problems in liquidity, easing the deposit interest rates would make the liquidity problem of small banks become more serious. In this case, the bad debts would increase since the real estate market remains gloomy and the productivity remains weak
Sharing the same view, Dr Nguyen Duc Thanh, Director of the Center for Research and Policies under the Hanoi National University, said that it is now not the right time to slash the deposit interest rates.
Thanh said he can see at least three negative things when easing the interest rates.
Though the government has been determined to ease the inflation rate, whether this comes true will still depend on many factors. Meanwhile, the consumer price index (CPI) increases have just been slowing down for the last several months; therefore, it is still too early to affirm the downward trend of the inflation.
“The interest rate should not be eased until the two factors still exist: people cannot enjoy real positive interest rates and banks still face liquidity problem,” Thanh said.
After the State Bank requested commercial banks to apply the ceiling deposit interest rate mechanism of 14 percent per annum, small banks have been facing big difficulties in mobilizing capital. Depositors have been refusing to make deposits at small banks, because in their minds, small banks mean weaker and unhealthy banks. If the interest rates go down further, the difficulties of small banks would become even more serious.
Dr Anh said that interest rates can be lowered if there are two factors. First, the inflation rate decreases, and second, the pressure to ease the lending interest rate appears. Meanwhile, in the immediate time, he cannot see any signs showing that slashing deposit interest rates would allow slashing the lending interest rates. In principle, the lending interest rate mainly depends on the money supply and demand.
Meanwhile, according to Dr Nguyen Duc Thanh, the lending interest rates would decrease when the risks in the national economy ease, and more capital flow to banks. He has stressed that if the interest rates are lower than 14 percent, banks, especially the small ones, will find it very difficult to mobilize capital. Once small banks cannot mobilize capital from the public, they will have to seek capital on the interbank market. If so, the interbank interest rates would be pushed up.
Meanwhile, some other economists have warned that if the deposit interest rates go down, not only small banks meet difficulties, but the State Bank itself would also face challenges.
If the deposit interest rate is forced down to 12 percent per annum, small banks would have no choice of “dodging the laws,” offering higher interest rates to attract more capital.
A rumor was spread in early December that the deposit interest rate would be lowered to 12 percent in December. Managers of some banks confirmed the information, but Deputy Governor of the State Bank Nguyen Dong Tien denied the information.
vietnamnet
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