|
Banks welcome SBV’s move to raise prime rate
The State Bank has lifted the prime rate by 3.25% to 12% per year
Faced with a conundrum over inflation outpacing the ability of banks to offer deposit interest rates high enough to attract capital and to charge lending rates low enough not to hurt the economy, the State Bank of Viet Nam has dramatically increased the prime rate.
On Saturday, the State Bank raised the prime interest rate a whopping 3.25%, from 8.75 to 12% per year. The refinancing rate was set at 13% per year, up by 5.5%, and the discount rate at 11% per year, up 5%.
These new rates come into effect May 19.
This was the second time since the central bank raised the three key interest rates on February 1, after leaving them unchanged for over three years.
Nguyen Ngoc Bao, head of the SBV’s Monetary Policy Department, explained the significance of the new rate at a press conference in Hanoi.
"The prime rate set by the central bank is the basic rate for commercial banks to set up trading interest rates, including both deposit and lending rates," he said.
It was also in keeping with the nation’s Civil Code, he said, which stipulates that the lending rates cannot exceed 1.5 times the prime rate. That means banks now are allowed to charge lending interest rates of no more than 18% per year.
Previously, with the prime lending rate a basis or reference rate only, commercial and individual lending rates had been negotiable with lenders.
In recent months, commercial banks charged borrowers very high lending interest rates, up to 22%. With loan rates so undesirable, some enterprises reduced production and offered each other loans at high, but more reasonable, rates. High lending rates therefore hurt borrowers as well as domestic production.
The higher rate from now on will allow commercial banks to attract capital by offering deposit interest of up to 18% per year, instead of the 12% per year that’s been offered since April.
With the 12% voluntary cap amongst members of the Viet Nam Banks Association (VNBA), commercial banks were getting into trouble with liquidity. They hardly attracted new depositors and struggled to keep existing deposits as the inflation rate rose to around 20% year on year in the past two months.
The central bank had to refinance as many as four banks that seriously lacked liquidity. Other banks rushed to offer promotions that cost them dearly to attract new deposits.
Duong Thu Huong, general secretary of the VNBA, said commercial banks were likely to welcome the new rate step-up.
"The new rate is seen as loosening the belt for them," Huong said.
State Bank Governor Nguyen Van Giau said: "The 18-per-cent cap for deposit rates is close to market realities.
"Based on central bank monitoring, the minimum lending rate over the past few days has been 12% and the maximum 18% per year.... The cap is aimed at allowing banks to grow in a healthy manner. They are allowed to manage by themselves how to operate within that cap. The central bank will not do anything further to force banks to take actions to reach the target."
Reactions to the State Bank move came swiftly.
"It’s a positive and accurate decision by the central bank at this time," an economist from the Central Institute for Economic Management (CIEM) said by phone yesterday, asking to remain anonymous.
"They have corrected something that was wrong with the recent regulations," he said.
On Saturday, the Bank for Investment and Development of Viet Nam (BIDV) held a press conference to announce their plan to raise deposit interest rates to 13.3% on term deposits of under six months, 13.5% for deposits of 6-12 months and 13% for over-12 month deposits.
Meanwhile, it set lending rates at 16.5% at least.
Ocean Bank quickly followed suit, stating its intention to offer 13.5% per year on one-to-three month deposits, and 14% on 6-13 month deposits. Sai Gon-Ha Noi Bank will offer 15% across-the-board on term deposits from one to 13 months.
However, Giau warned that any bank pushing deposit rates up too close to the 18-per-cent lending limit would be audited for management capacity and capital conditions.
VNS
|
