Base rate hike call

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Báo Đầu Tư English - 98 month(s) ago 2 readings 1 duplicate news

Local banks are calling on the State Bank to lift the base interest rate to cushion them against losses. At a meeting with the central bank last week, some Ho Chi Minh City-based banks claimed they had been handicapped by the base rate currently set at 8 per cent.

Under existing rules, commercial banks can only borrow and lend within 1.5 times of the base rate, except negotiable loans. Bankers said there was no difference between deposit and lending interest rates and a common mobilisation rate was applied to all deposits regardless of their terms. The situation was distorting their capital and lending structures, banks lamented.

BIDV’s Ho Chi Minh City branch director Le Kim Hoa said local banks were racing to attract depositors by offering bonuses and other incentives equal to 30-40 per cent of their mobilisation interest rates. The highest deposit rate being offered was 10.49 per cent.

“The race is distorting deposit interest rates. Short-term deposits are increasing while medium and long-term deposits are declining, causing difficulties for banks to arrange capital for lending,” said Hoa.

Tran Van Vinh, general director of Phuong Dong Commercial Bank (OCB), estimated that 50 per cent of deposits at small banks had terms of below three months while banks are allowed to use a maximum 30 per cent of short-term deposits for medium and long-term lending. “This results in an imbalance of banks’ operating capital,” he said.

Agribank’s Ho Chi Minh City branch director Nguyen Xuan Canh suggested the central bank give commercial banks the autonomy to decide interest rates. He argued that a market-oriented interest rate management mechanism “is the most suitable”.

The central bank has asked the National Assembly to amend the State Bank Law towards defining a market-oriented interest rate management mechanism. It has also proposed an amendment to the Civil Code, which imposes an interest rate cap of 150 per cent of the base rate on commercial banks.

However, the draft amended State Bank Law will only be submitted to the National Assembly for approval in May of this year. Meanwhile, it would take two more years for the National Assembly to amend the Civil Code.

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