Interest rate cap is axed oved, new

17:37 | 19/05/2008
The State Bank has officially abolished the interest rate cap put in place since late February, 2008. However, financial experts said new measures were at the same time introduced to prevent a possible interest rate race between banks.
According to the Decision No. 16/2008/QD-NHNN coming into effect from May 19, 2008, commercial banks are allowed to mobilise and lend at rates not exceeding 150 per cent of its base rate stipulated in the Civil Code. The State Bank’s base rate has just been lifted to 12 per cent from 8.75 per cent previously.

In the Civil Code, the State Bank’s base interest rate was used as a benchmark rate for reference in case of an economic lawsuit related to commercial banks’ lending services. The State Bank’s base interest rate represents the best rate that the central bank can lend money to commercial banks. However, over the past years, the State Bank’s monthly published base rate has not been considered as a guiding rate to local commercial banks’ mobilising and lending interest rates and the rate was considered to be abolished earlier this year.

A State Bank official said that, with the new regulation, local banks would be cautious before increasing their mobilising interest rate. “This means the new mobilising interest rate ‘ceiling’ would be around 14-15 per cent as the lending rates are capped at 18 per cent,” said the State Bank’s official.

Le Dac Son, the general director of VP Bank, said the bank was considering hiking its mobilising interest rate to 15 per cent/year to 12-month term deposits. “Amid capital shortages spreading all over the banking system, banks now have to accept thinner margin to meet the demand of both depositors and borrowers,” said Son.

In late February, 2008, as the local banks en masse raced to hike mobilising interest rate, the State Bank released Urgent Document No.02 setting a 12 per cent limit on banks’ mobilising rate. The document immediately proved effective to control the market mess as depositors stopped withdrawing money from banks because of better rates.

However, on Friday last week after a meeting between the State Bank and commercial banks in Ho Chi Minh City in which the State Bank said it would abolish the rate cap from this week, some players immediately increased rates before the State Bank released the official document.

“Some banks offered our customers/depositors with interest rates exceeding 14 per cent, thus, we had to increase our interest rate to over 13 per cent to retain customers,” said an official from Bank for Investment and Development of Vietnam (BIDV). She forecasted that with this new regulation, all banks would increase their mobilising rate to attract customers.

According to the State Bank statistics, in April the growth of deposits into the banking system stood at 1.2 per cent against March while the growth over the first three months reached just 4.14 percent. As a result, the credit growth in April has dived to just 1.66 per cent, bringing the aggregate growth over the first four months of 2008 to 14.73 per cent.

By Vu Giang

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