The basic interest rate for April 2010 is at eight percent per annum, so commercial banks cannot provide loans at rates higher than 12 percent and cannot pay more than 10.5 percent on deposits.

The interest rate ceiling dissatisfies everyone. Bankers complain they must still “dodge the law” to make deposit interest rates higher than 10.5 percent. Businesses complain that they cannot receive bank loans.

A HCM City joint-stock banker admitted that all banks must offer preferences, gifts or even cash to attract depositors. In fact, banks do not pay 10.5 percent for deposits, but 11 percent or higher. If the banks then lend at 12 percent, they incur severe losses.

Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, posited that there are many abnormalities in bank interest rate policies. Nghia noted that, in normal conditions, the interest rate shape should curve, and short-term deposits must have lower interest rates.

Currently, 10.5 percent is applied to nearly all kinds of deposits. Nghia cited that a bank recently raised the dong demand deposit interest rate from 3.6 to 9 percent per annum. Demand deposits should receive the lowest interest rates, not higher than 30 percent of the fixed term deposits’ rates.

The interest rate curve prompts people to make short-term deposits, believing interest rates will increase further. “This will place pressure on commercial banks in terms of capital structure,” Nghia noted.

Who can borrow at 12 percent?

Analysts say that the ceiling is meaningless, because no one can borrow money at 12 percent per annum.

Nghia added that only a few Government projects can borrow at 12 percent or clients with very close banking relationships.

‘It is necessary to think of the interest rate liberalization soon,” Nghia concluded.

In terms of worries that the end of the ceiling will make interest rates escalate, Nghia pointed out that interest rates were decided by the market from June 2002 to April 2008, and the rates did not jump to abnormally high levels.

Nghia also continued that removing the interest rate ceiling does not mean floating the interest rates, because central banks still have many tools to regulate rates and put the interest rate curve back on the right track.

Source: VietNamNet/SGTT