Vietnam - Deposit rate cap can be lowered: expert

by lexie Mon Oct 24, 2011 1:25 pm

October 24, 2011

Deposit rate cap can be lowered: expert

Associate Professor and Doctor Tran Hoang Ngan told Tuoi Tre that the deposit interest rate ceiling can be lowered and the lending rate will be reduced accordingly.

Ngan said now that inflation was slowing down, the cap could be lowered.

He said the Consumer Price Index in October was expected to rise by only 0.5 percent, the slowest rate so far this year, and this was the basis for the cap to be cut.

He said the ceiling would be first lowered from the current 14 percent a year to 13 percent, and even to 12 percent if CPI continued to fall.

This would enable the lending interest rate to decrease to help businesses, he said.

As some insiders have demanded the cap to be removed, Ngan said it was not the right time.

“At present, the ceiling has to be kept so that the target of cutting the lending rate can be achieved,” he said.

Although banks’ mobilized capital has begun to fall due to the low deposit rate of 14 percent a year, he said even a lower rate would not considerably affect banks’ capital.

He said banks shouldn’t be too concerned about the decreased mobilized capital since investors’ turning their back on bank savings was just a “natural reaction.”

“Things will soon return to its normal state,” he said, adding other investment channels also appeared to be less attractive to investors.

He said the number of defaults of the Ponzi schemes had recently forced investors to seek other safer channels, including bank savings.

Since the lowered deposit rate will decrease the mobilized capital of banks while demand for bank loans will go up thanks to the reduced lending rate, some experts are concerned that banks will face a capital shortage.

But he said the shortage might not arise since banks didn’t necessarily have to meet all demands for loans.

He said the deposit rate should be managed in accordance with the inflation control targeted by the government.

“The government has aimed for single digit inflation next year and banks have to offer deposit rates based on that target,” he said.

“It will be unreasonable for banks to mobilize capital at high interest rates when inflation is low.”

http://www.vietfinancenews.com/2011/10/deposit-rate-cap-can-be-lowered-expert.html#more