Vietnam may remove deposit rate ceiling: official

TN News

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The 14 percent cap on bank deposit rates is only a temporary measure to ensure safety for the financial system and can be lifted when the market becomes stable, a central bank official said.

The ceiling was introduced in an attempt to prevent unhealthy competition between lenders, Nguyen Thi Hong, deputy director of the Monetary Policy Department at the central bank, was cited as saying in a report on news website VnExpress.

"Interest rates are what banks mainly use to compete with each other in attracting deposits. So when the market is unstable, the lack of a rate cap would likely lead to a race between banks, hurting the system's safety," she said.

Hong said when interest rates are stabilized, the authorities may consider removing the cap. "I believe after aggressive measures recently taken to deal with banks violating the rate cap, a race among lenders will not happen again."

The State Bank of Vietnam in September banned commercial banks from paying more than 14 percent on dong deposits in order to bring lending rates down.

Two partly private lenders, Dong A and HDBank, have been found violating the regulation. Central bank inspectors last week asked HDBank's board of management to dismiss Deputy CEO Dam The Thai from his position as a punishment. Dong A has been banned from opening branches for a year.

Some experts have called for the removal of the cap.

To Kim Ngoc, vice president of the Banking Academy in Hanoi, said interest rates are high in Vietnam because there is a large gap between investment and savings. This is even more noticeable when money supply for the economy is restricted, she said.

"When monetary policies are tightened, interest rates will surge"¦ So why put a cap on interest rates?" she asked.

Earlier this month, Masato Miyazaki, a Washington-based division chief in the IMF's Asia and Pacific department, had said the deposit cap should be eliminated as "people are likely somewhat discouraged from putting their dong into bank accounts."

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