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Ceiling interest rate of 11% won’t be removed: VNBA
In the latest news related to the ceiling interest rate scheme, the Vietnam Banking Association has affirmed that the ceiling interest rate of 11% will not be removed, as people thought.
The story about the ceiling interest rate scheme proves to be a long story. It began with the decision by the State Bank of Vietnam several months ago that commercial banks must not mobilize capital at the interest rates higher than 12% per annum, which meant that the ceiling interest rate was 12%.
Several weeks later, commercial banks, under the arrangement of the Vietnam Banking Association (VNBA), agreed to apply the ceiling interest rate of 11% for VND deposits, and 6% for US$ deposits.
However, the Saigon Commercial Joint Stock Bank (SCB) unexpectedly launched the promotion programme on promissory note issuance with the attractive interest rate of 12% per annum and attractive gifts, higher than the 11% ceiling interest rate agreed before among VNBA’s members.
While bankers were busy arguing whether SCB violated the law and if it should be heavily punished for breaking the agreement, an instruction from the Government came which said that the ceiling interest rate should not exist.
Stabilizing interest rates is the tendency
In the latest event, Duong Thu Huong, Secretary General of VNBA on the afternoon of April 16 said that she has received the document from SCB, announcing that SCB has stopped the program on mobilizing VND3tril by issuing promissory notes with the high interest rate of 12% per annum.
As such, the worries about the possible new interest rate war have been stamped out.
Huong said that SCB, in fact, did not intend to break the ceiling interest rate. The bank has prepared for the promotion program for a long time, and the first preparatory steps began before banks reached the agreement on the 11% ceiling interest rate on April 2.
“However, SCB has stopped the program, and this is good news,” Huong said
Huong emphasized that once VNBA’s members agreed on the ceiling interest rate of 11%, they would respect the agreement.
After banks slashed their deposit interest rates, some of them have lowered the lending interest rates. It is expected that more VNBA’s members will follow the move by cutting lending interest rates.
“This is the path which VNBA is going on,” Huong said.
Removing ceiling interest rates? No!
Regarding the instruction from the Government, which is understood that the ceiling interest rate scheme will be removed, which will pave the way for a new interest rate war to kick off, Huong affirmed that the removal will not occur.
Huong said that VNBA has sent a document to the Government to ask about the issue and has received the reply.
The Government applauded VNBA’s activities in an effort to lower interest rates and stabilize the monetary market. Regarding the ceiling interest rate scheme, this should be understood that once bankers can themselves agree on a suitable ceiling interest rate, the administrative orders on interest rates will be unnecessary.
VNBA does not think that it is necessary to let commercial banks raise interest rates in order to attract more money from circulation, which is believed to help curb inflation.
In fact, only the State Bank’s action of withdrawing money from circulation can help restrain inflation, while the same action of commercial banks will not bring the same effect.
In 1989-1990, the State Bank once offered very high interest rates to withdraw money from circulation to curb inflation. Meanwhile, commercial banks withdrew money from circulation, but when they don’t keep that money but re-lend it to clients, how can they help curb inflation?
It is clear that once commercial banks mobilize capital at high interest rates, they will have to lend to businesses at high interest rates to cover the high capital mobilization. If so, the national economy will suffer, as businesses have high production costs and their products are not competitive.
VNN
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