State Bank holds its ground against banks
22-APR-2008 Intellasia | Vietnam Investment Reviews page 15
Apr 22, 2008 - 7:00:00 AM
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The State Bank is staying firm against some local banks' calls to lift the mobilisation rate cap following a prime minister's direction to abolish the interest rate limit.
On April 7, the prime minister directed the State Bank to abolish the 12% limit set on banks' mobilising rates introduced earlier this year due to frenzied race between the lending institutions for funds amid the liquidity crunch.
After the prime minister's message was spread, some local banks have been asking the State Bank to lift up the cap saying that the rate limit was hindering them to mobilise capital while borrowers' demands were increasing.
However, according to a State Bank source, the authority is working out a document submitted to the prime minister this week in which the interest cap would be retained.
State Bank statistics show that, since mid-2007, the credit growth has been exceeding deposit growth due to the liquidity credit crunch. In 2007, while banking system deposits grew at over 38%, credit jumped by 53%.
"Commercial banks have ignored the State Bank's call for limiting credit growth. Despite our tightening measures introduced since the beginning of 2008, credit growth still rose faster than the same period last year," said a State Bank official.
Credit growth has been consistently going up with around 12% increase over the first quarter of 2008.
Additionally, the State Bank said the ratio of total amount of money in circulation against total liquidity decreased by 1% compared with the same period last year. "This means that the cash in circulation has been less available, thus, the race for fund between banks once the rate cap was removed could only lead to switch of depositors between banks possibly causes systematic instability."
"Thus, the State Bank tends to maintain the 12% cap," said the State Bank source.
Le Dac Son, VPBank's general director, said that with the State Bank's 12% cap and Vietnam Banking Association's (VNBA) 11% cap, banks' deposits have decreased dramatically.
According to State Bank's HCM City branch's report, in the April 1-16 period, the total amount of banks' deposits decreased by 9,000 billion dong (US$562.5 million) compared to the same period in March, 2008.
Since April 2, upon agreement between commercial banks after discussions held at VNBA, banks have all decreased the mobilising rates to maximum level of 11%/year.
According to banking experts, once the rate cap was removed, the mobilising rate could hit 15-16%/year amid banks' cash shortage drove the interest rate on interbank market where local banks borrow each other overnight to 22% last week, much higher than 9-11% level in early April.
Amid cash shortage, since April 7, Saigon Commercial Bank (SCB) had issued 270 and 360-day promissory notes with the interest rate of 12% a year plus a 2.5 billion dong incentive via a lottery programme planned to mobilise total of 3,000 billion dong (US$187.5 million).
This programme could be understood that SCB violated the State Bank's regulation by offering an interest rate level higher than the authority limit.
However, in the latest move, after the discussion with the State Bank governor, the bank has decided to halt the programme.
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