The regulation that the State Bank of Vietnam fixes the ceiling interest rates on US$ deposits has been burdening both banks and businesses.

The US$ interest rate stands at 5.3% in the US, while in Vietnam, businesses just can earn 1.5% per annum in interest on their deposits at banks.

In general, the interest rates for foreign currency deposits stipulated by the State Bank of Vietnam (SBV) always follow the basic interest rate declared by the US Federal Reserves (FED). In 2001, FED decided to lower the basic interest rate from 6.5% to 1.75%. It then decided to further cut the interest rate to 1.25% the following year, and to 1% in 2003.

In Vietnam, in 2001, SBV decided that the ceiling interest rate for businesses’ US$ deposits at banks was 1.5% for six-month term deposits, and 2% for ones with terms of more than six months. One year later, the ceiling interest rate was lowered to 1%, which was raised to 1.2% and 1.5% for less than six-month and more than six-month term deposits respectively in 2003. The interest rates have been maintained since then and have been piquing the ire of the business community.

Under the current regulations, there is a big gap between the rates applied for individual and institutional clients. The ceiling rate applied for individual clients is 5.3% per annum, while businesses just can earn 1.5% per annum for their US$ deposits.

The low interest rates for enterprises have put big difficulties on their operations. They have two choices only for the sums of foreign currencies they can earn from exports: either making deposits at banks, or selling the foreign currencies to get VND to make VND deposits at banks. If they choose the first solution, they get low interest rates, and if they choose the second solution, they have to follow complicated procedures.

A representative from the Import – Export Joint Stock Bank (Eximbank) said that it was reasonable for the central bank to lower the ceiling interest rate in 2003 when the FED’s interest rate was low. However, it is unreasonable now to keep the domestic ceiling interest rates unchanged while the FED interest rate has increased.

The official said that many commercial banks were seeking permission to issue deposit certificates to businesses at negotiable interest rates. This is considered the best solution at this moment, as it can help banks mobilise the sums of foreign currencies of businesses, while helping businesses avoid losses caused by the low interest rates.

Source: VNE