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SBV won’t succeed in regulating interest rates based on banks’ agreements
Experts have pointed out that the State Bank of Vietnam still has not found the proper monetary solution, therefore, interest rates are still escalating. They have also warned that the central bank will not succeed if it regulates interest rates based on banks’ agreements.
In the past, commercial banks sat together many times to discuss the interest rate policies and agreed to apply ceiling interest rates. However, right after leaving the meetings, they broke their promises and raised the deposit interest rates in order to attract more depositors. Meanwhile, banks explain that the agreements reached by commercial banks are not legal enforcements, therefore, they have the right to decide to follow or break the commitments.
On December 8, Techcombank stirred up the public when offering the highest interest rate on the market at 17 percent per annum for a one month term deposit. The move by Techcombank was described as an action to throw the market into chaos. Right after the new interest rate was announced by Techcombank, the monetary market immediately became feverish: Other commercial banks also raised their deposit interest rates, triggering a new interest rate war.
The State Bank of Vietnam then had to urgently intervene in the market by requesting Techcombank to reconsider its interest rate policy and asking commercial banks to sit together to discuss the interest rates.
After the latest meeting, the ceiling interest rate that banks agreed to apply increased from 12 percent to 15 percent. This means that commercial banks have pledged not to offer the deposit interest rates at higher than 15 percent per annum.
However, Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, commented that the State Bank still has not found the right monetary policy solution, and that interest rates cannot be stabilized simply by banks and administrative measures. That explains why, even after the agreement was reached, many commercial banks have still been quietly applying higher interest rates at 16-16.5 percent per annum.
Duong Thu Huong, Secretary General of the Vietnam Banking Association, admitted that it is impossible to force banks to obey the agreement because the agreement is not a legal document, and the association has no power to punish the banks which break the commitments.
Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management (CIEM), said that every time when the central bank tightens the monetary policies, small banks regularly face liquidity problems. They always have to borrow money in the interbank market at high interest rates. However, the volume of money they can borrow in the interbank market is modest and must not be higher than 20 percent of the total capital they can mobilize. As the result, the banks have to raise deposit interest rates to attract more capital, triggering interest rate wars in the market. Once the interest rate war begins, no bank can stand outside the race, if they want to retain their depositors.
Nghia related that some days ago, he witnessed the branches of a big commercial bank scrambling for a 900 million deposit from a client. Citing the example, Nghia said that the pressure of mobilizing capital is very hard.
Nghia believes that the central bank has not chosen suitable monetary policies. In order to restrict credit, the central bank should have required higher compulsory reserves ratio. If so, money will be “imprisoned” at the state bank and the bank can use the money to help small banks improve their liquidity. In this case, small banks will not have to raise interest rates because they can get support from the central bank. However, the central bank did not use that solution, and therefore the monetary policies did not bring the desired effects.
Experts also say that the central bank is trying to restrict credit (Banks are allowed to lend 80 percent of their mobilized capital at maximum), therefore, money still rests in commercial banks. As banks cannot trade the money they have, they try to trade foreign currencies and gold.
Nghia emphasizes that for now the urgent solution is that the central bank needs to work with the banks with difficulties in liquidity to discuss solutions. In order to have money to settle the problems, it is necessary to raise the required compulsory reserve ratio. The ratio is now 10 percent in the US, while the figure is only 3 percent in Vietnam.
vietnamnet, Dau tu
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