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SBV sets ceiling interest rate for interbank market
After nearly one month of consideration, the State Bank of Vietnam finally decided to set the ceiling interest rate for the interbank market – it must not be higher than 150% of the basic interest rate announced by the State Bank.
As such, the ceiling interbank market’s interest rate is 21% for now, as the basic interest rate the central bank announced for August is 14% per annum.
In theory, the new decision will support small banks, which will be able to seek capital at interest rates affordable for them. Moreover, the scenario of the interest rate skyrocketing to 35-40% as was seen in the past will not happen again. In the past, when the monetary market was overly hot and banks were all thirsty for capital, a state-owned bank reportedly could reap fat profit by lending capital equal to 25% of its total assets at exorbitant interest rates.
Nevertheless, analysts have warned that the decision will have negative impacts on the monetary market. A banking expert said that the interest rate should be defined by the supply and demand basis. It would be fair for small and ineffective banks to bear higher interest rates than big and profitable banks for the same loan values. If the ceiling interest rate is set in the interbank market, the classification of banks by bank operation efficiency will not exist.
The existence of the ceiling interest rate in the interbank market will lead to the fact that the market does not have a benchmark which can help assess the level of capital deficiency of the banking system. The said banking expert said that the interest rate limit can be compared to a thermometer which can only measure the coldness of the market, it cannot show how hot the market is.
Analysts have also expressed their concern that the monetary market may become distorted with the decision. If the capital supply becomes seriously short, banks that have profuse capital will not lend capital unless they can get suitable interest rates. It may happen that banks negotiate with each other on providing loans at interest rates higher than the ceiling levels in order to benefit both the lenders and borrowers. If so, the deals will be carried out among banks, which will make the deals uncontrollable.
VNN
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