The country has not yet had enough conditions to lower the interest rate in the banking sector, said Governor of the State Bank of Viet Nam (SBV) Nguyen Van Binh at an online discussion held by the Government Web Portal chinhphu.vn in Ha Noi yesterday.
The discussion focused on issues of monetary policy, interest rate, liquidity in the banking sector, restructuring, foreign exchange and gold markets.
Binh said the lower interest rate had been the urgent demand of people as well as hope of the Government and banks.
"However, lowering it depends on several conditions, including inflation and liquidity at banks," he said.
The governor said the country had faced the high inflation of 18.5 per cent for 2011 despite CPI's growth rate being reduced.
"We could not lower the interest rate immediately with such a high inflation rate."
In addition, liquidity had been a headache for years. The average credit growth in the banking system was 29.4 per cent over the past 10 years.
Binh added that capital utilisation structure at banks had been incorrect because they mobilised money for the short term while loans were mid- and long-term.
The SBV regulates that the rate of mid and long-term loans at every bank should be less than 30 per cent. However, in reality, the rate was 60-70 per cent, or even 100 per cent, of banks' total loans.
"Credit institutions coped with difficulties when the Government implemented tighter monetary policies," he said, adding that the SBV and commercial banks had been finding solutions for a lower interest rate at a suitable level.
Several people and organisations were concerned whether there would be a crisis in the banking sector or not.
Binh confirmed that the sector's restructuring was rooted from the demand to change the country's economic development model, not its weaknesses.
"A restructuring of the whole economy will improve the quality instead of quantity. It has been an urgent demand to resolve shortcomings in the banking sector," he said, adding that there would be five to eight banks to be merged this year.
He also admitted that violations in the interest rate cap were prevalent due to a weakness in supervision.
"The SBV has drastically resolved the situation since September, but will promote the supervision this year."
Binh added that all activities violating SBV's regulations, including interest rate caps, would be illegal and unhealthy to competition. The SBV would co-operate with public security forces to strictly punish violations.
The Governor in a press meeting in Ha Noi on Wednesday said in the first quarter of the year, the central bank would maintain its interest rate cap.
"The SBV would supply money to credit institutions to increase their liquidity and facilitate business production activities."
The cap on interest rate at 14 per cent a year was expected to be lifted when the SBV could better manage credit institutions' liquidity, he said.
Accordingly, the banking sector posted a credit growth of 13 per cent last year, representing almost one-third of the previous years' figures.
Binh said tightening credit growth would help reduce machinery and equipment imports and the trade deficit.
The central bank would continue supporting Vietnamese dong and stabilising foreign currencies to ensure that exchange rate fluctuation would be held at 2 to 3 per cent.
Also at the discussion, the Governor said the Vietnamese dong had increased its attractiveness because of the SBV's monetary policies.
"Viet Nam retained a foreign exchange rate and forex market in a difficult context last year. The forex had fluctuated less than 1 per cent. Speculation in the foreign currency market had reduced sharply, while people tended to sell foreign currency to banks, thus improving liquidity in the system," he said.