Will ceiling interest rate scheme be removed for short term loans?

Commercial banks are feeling confused by hearing conflicting information from government agencies about removing the interest rate ceiling on short-term loans.

At a press conference on March 3, 2010, Le Duc Thuy, Chair of the National Finance Supervision Council, stated: “The Government is now leaning toward instructing the State Bank of Vietnam (SBV) to allow negotiation-based interest rates in all feasible business projects, no matter if they are short, medium or long-term.”

He added that “SBV needs to continue considering this issue and allow to apply negotiation-based interest rates to short-term loans as well, and will continue consideration of removing the ceiling deposit interest rate of 10.5 percent.”

Thuy also observed that the interest rate ceiling decided by the basic interest rate has set unreasonable ceilings in both capital mobilization and lending. Previously SBV was given the green light by the Government to apply the negotiation-based interest rate to medium, long-term and consumer loans. The move, as explained by Thuy, aimed to stabilize the market.

His assessment has proven to be accurate. On March 7, the Government released Resolution No. 12: “SBV instructs commercial banks to apply negotiation interest rates to feasible business projects and create the most favorable conditions for businesses to access bank credit.”

As such, the removal of the interest rate ceiling and market stabilization now depend on SBV.

In direct contrast, the March 10 bulletin on the SBV official website provided details of the working session of SBV Governor Nguyen Van Giau in Tien Giang, Long An and Tay Ninh provinces on March 8 and 9. Governor Nguyen Van Giau stated then that SBV has helped banks by allowing negotiation-based interest rates to medium and long-term loans. As for short-term loans, the central bank is still considering the current conditions and cannot do more than what it has done.

He stressed that SBV will heavily punish banks that violate regulations (i.e., applying negotiated interest rates to short-term loans)

As such, it remains unclear if SBV will remove the interest rate ceiling for short-term loans. After reading Thuy’s words, banks question whether or not it will be removed at all.

VietNamNet/TBKTSG

Tags: banks in vietnam, Vietnam banking, Vietnam banks, Vietnam finance news, Vietnam financial, Vietnam interest rate, Vietnam short term loans

Posted by VBN on Mar 11 2010. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry