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Distorted banking ‘needs reforming'
The banking system needs to be reformed, an economist told a seminar held in HCM City last week.
Speaking at "Ireland – South East Asia Business," Dr. Le Xuan Nghia, Deputy Chairman of the National Financial Supervisory Commission, said: "Use of too many administrative orders instead of market tools has seriously distorted interest rates."
The State Bank of Viet Nam had resorted to measures like limiting lending to restrict credit growth to fight inflation, rather than adopting monetary and other policy tools.
But it could not curb interest rates on the inter-bank market, which were at a very high 22 – 24 per cent.
"Therefore, banks, especially small ones, have reacted by using two financial accounting systems. A fake one is used showing an interest rate of 14 per cent while the real one shows much higher interest rates of 17-18 per cent."
It was easy to understand why small banks resorted to this since borrowing on the inter-bank market would cost them 4-6 per cent more.
"This severely distorts the banking system and makes the Government's supervisory system ineffectual. The lack of transparency is becoming more and more serious."
Interest rates should follow market demand.
The smaller banks faced a liquidity crunch unlike big ones that had ODA funds, deposits from the big corporations, and the proceeds of Government bonds.
In the last three years there had been a slowdown in banking reforms and restructuring, with some banks even relinquishing international standards.
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