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VietNamNews

Credit houses told to obey interest rate cap

Update: January, 25/2016 - 09:45
The central bank will control property loans this year, while bad debts remain an issue for the banking sector. — Illustrative image cafef.vn

HA NOI (VNS) — The State Bank of Viet Nam (SBV) has told credit institutions to obey legal regulations on deposit interest rates to ensure safety of institutions and stabilise the local monetary market.

The move was made last week after some institutions recently offered many promotional programmes and bonuses to attract depositors, taking their real interest rates higher than the rate cap of 5.5 per cent per year for short-term dong deposits regulated by the central bank. Currently, the central bank sets the rate cap only on short-term deposits of less than six months.

Under Circular 297/NHNN-TTGSNH, the central bank said that credit institutions are not allowed to use ‘technical measures' as a loophole to indirectly exceed the central bank's rate cap. The central bank prohibits any unhealthy competition in the capital attraction of credit institutions.

According to the circular, credit institutions must issue written instructions before January 25 to instruct their subsidiaries and branches obeying the regulation.

Banking supervision and inspection agencies will enhance their watch on the implementation of obeying the rules. Fines will be imposed in case of violations.

For the past few weeks, many credit institutions have offered numerous promotions and bonuses of interest rates or gifts to depositors to meet their rising capital demands towards the end of the lunar year. The programmes have increased the operating costs of institutions, causing negative impacts on the interest rate levels in the domestic market.

Besides, 14 credit institutions have adjusted their deposit interest rates upwards by roughly 0.1per cent to 0.5 per cent per year in many terms for the past month, according to statistics from the central bank.

According to experts, capital mobilisation at banks has been busier than previously as the credit of the entire banking system has increased sharply, causing a temporary shortage of liquidity in some banks. Credit in 2015 surged 18 per cent, compared with 12 per cent in 2011, 10.9 per cent in 2012, 12.51 per cent in 2013, and 14.16 per cent in 2014.

The central bank in 2016 is also targeting a credit growth rate of 20 per cent, and SBV Governor Nguyen Van Binh said the central bank would find it difficult to further drop lending interest rates as demand for funds would remain high, and the SBV needed to balance its efforts to keep the foreign exchange rate stable.

To guarantee credit expansion, mobilisation needs to grow alongside while banks have to allocate resources to buy government bonds, thus putting pressure on lending interest rates.

However, Binh said that the SBV this year would act to keep lending interest rates stable just as in 2015, and strive to lower the medium- and long-term rates by an additional 0.3 to 0.5 percentage points. — VNS

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