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VietNamNet Bridge – 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.
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.
Source: Dau tu
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