Interest rates hard to fall on low liquidity in economy

Vietnam banks failed to cut interest rates to 10% for deposits and 12% for credits by September as pledged earlier in June as some big banks drove the cash flows between commercial banks and the SBV to get margins instead of pumping them to the economy.

Vietnam banks failed to cut interest rates to 10% for deposits and 12% for credits by September as pledged earlier in June as some big banks drove the cash flows between commercial banks and the SBV to get margins instead of pumping them to the economy.

Though the State Bank of Vietnam has net- injected VND65 trillion in the last five months into the commercial banks via the open market operations (OMO), but only a small ratio was pumped into the economy for production, said Le Xuan Nghia, Vice Chairman of Vietnam’s National Financial Supervision Commission (NFSC).

Nghia pointed out that the vicious cash flows go like this: commercial banks borrowed cheap money supply in the OMO market at 7.5% p.a interest rate to buy Government bonds with interest rate of 10% p.a, earning 2.5% spread. These banks also again used Government bonds as collateral to borrow more in OMO which contributed to the wealth of these banks only instead of supplying liquidity into the economy for production.

Meanwhile, it is hard for enterprises to access credit and borrowers are struggling to cope with high interest rates of 15%-16%.

“ When liquidity shortage remains in the economy, interest rates are hard to fall” Nghia said.

Vietnam’s NFSC has proposed the SBV to recalculate and mull pumping sufficient money supply into the economy which is feasible at this time as inflation is now still in check.

“ I could clearly and precisely say that the SBV must supply money, net- injects sufficient liquidity to ensure relatively high cash circulation and increasing goods turnover in the economy, only then interest rates can fall ”, Nghia said. – Stoxplus.com

Tags: vietnam bank, Vietnam finance, Vietnam financial, Vietnam interest rates