Central bank initiative reduces lending rates

Saturday, Sep 21, 2013 13:12

By reducing deposit interest rates by 7-10 per cent, the bank was able to get the lending rate down by 9-12 per cent against mid-2011.Photo giaoduc.net.vn

HA NOI (Biz Hub) — The lending interest rate is currently equal to the 2005-06 rate thanks to the flexible interest rate cap regulations the central bank has applied since 2011, according to a report the bank released this week.

By reducing deposit interest rates by 7-10 per cent, the bank was able to get the lending rate down by 9-12 per cent against mid-2011.

Director of the central bank's Monetary Policy Department Nguyen Thi Hong said that in the second half of 2011 when inflation was high and liquidity of commercial banks was weak, the central bank focused on strictly punishing violators of interest rate regulations while keeping the annual deposit interest rate of 14 per cent unchanged.

In early 2012, the central bank announced plans to cut interest rates by one per cent per quarter on average to orient the market, Hong said. After five successive cuts, the deposit interest rate cap was six per cent lower.

The deposit rate also went down by roughly one per cent in the first nine months of this year. The interest rate cap for deposits of terms less than six months is seven per cent and the interest rate cap for longer deposits has been removed.

Currently, deposit interest rates at commercial banks are 1 – 1.2 per cent per year for demand deposits, 5-6.5 per cent per year for one to six month terms, 6.5 – 7 per cent for six month to below 12 month terms and 7.5-9 per cent per year for 12 month and 12 month-plus terms.

Lending rates are 7-9 per cent per year for short – term loans for prioritised sectors such as agricultural and rural development, exporters, supporting industries, small – and medium-sized firms and high-tech enterprises. The rates for other production and business sectors are 9-11 per cent. Borrowers with feasible business plans or healthy financial status can access loans at rates of only 6.5-7 per cent.

Despite the sharp cut of interest rates, deposits in dong by mid-September still rose 13.78 per cent against December last year, proving the success of the central bank's monetary policy management, Hong said.

Additionally, there has not been any unhealthy competition among commercial banks to attract depositors even though the central bank removed the interest rate cap for long-term deposits. The new interest rate curve shows improved capital distribution, according to Hong. — VNS

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