State Bank denies rumour of new interest rate cap

The Governor of the State Bank of Viet Nam, Nguyen Van Giau, on Thursday affirmed that, to date, the central bank had no policies on adjusting interest rates or putting caps on lending rates.

Many banks were recently reported to be in breach of deposit cap rates set at 14 per cent, forcing enterprises to borrow capital with interest rates of up to 23-25 per cent. The disorder in the banking system led to rumours that the State Bank (SBV) planned to cap lending rates at 18-19 per cent while raising deposit rate caps to over 14 per cent.

"Although a few have mentioned this issue, I affirm that it's not a central bank policy. The central bank has not issued any adjustments concerning lending rates or dong deposit interest rates," Giau told reporters.

Giau added that controlling lending rates looked good on paper, but brought risks that the SBV could not afford, particularly on the back of credit demands already exceeding supply.

He mentioned that an application of lending rate caps could lead to the bribery of bank staff. "Corruption can make staff ease credit requirements and consequently, not only placing the bank at risk, but also the entire system."

Adjusting interest rates should be consistent with macroeconomic signals, the Governor said.

He revealed that the SBV had considered adjusting interest rates when global prices fluctuated last month, but now that prices and inflation were declining as well as the national economic condition improving, "why should we lift the caps on deposit rates?"

By May 23, capital mobilisation throughout the entire banking system rose 1.48 per cent compared to the end of 2010, of which foreign currency mobilisation increased 18.84 per cent while dong mobilisation decreased 2.75 per cent.

The decline of mobilisation in local currency was mainly attributable to the capital withdrawal of economic organisations worth VND156.7 trillion (US$7.6 billion). Giau said that this was healthy as enterprises drawing money from banks to invest in production could reduce production costs and improve liquidity in the economy, as well as decrease the coefficient of currency expansion.

Dong deposits from civil groups surged 11.84 per cent while deposits in US dollar rose 8.63 per cent.

Total outstanding credit rose 6.2 per cent compared to the end of last year. Loans in dong increased 2.59 per cent while credits in foreign currency rose 18.9 per cent. The net increase of credit volume during the first five months of 2011 reached VND135.8 trillion ($6.59 billion), equivalent to 33 per cent of the total planned credit for the year.

Credit growth in the manufacturing sector, in terms of agricultural, rural areas and export in particular, reached 22.2 per cent. Loans to the non-manufacturing sector declined by 1.92 per cent from 18.87 per cent at the end of last year.

Giau said loans to the non-production sector accounted for 16.95 per cent of total credit and from now until the end of this year, lending to this sector could be reduced to 16 per cent according to Government targets.

By May 23, Western Bank and Vietbank, having credit growths of over 20 per cent, would be investigated by the central bank, Giau confirmed.

He added that banks violating deposit caps would be fined, saying, "if any breaches were detected, branch managers would be disciplined, or branch operations suspended".


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