Vietnam central bank allows negotiated interest rates

The State Bank of Vietnam on Friday allowed local lenders to negotiate with clients on interest rates for medium and long term loans.

The central bank had previously prohibited such a move and interest rates on business loans were not allowed to exceed 150 percent of the key rate regulated by the central bank.

Banks could, however, set lending rates for consumer loans beyond the cap.

Analysts said putting interest rates under a cap had helped curb inflation, but on the other hand lending rates did not reflect the real value of loans on the market, creating difficulties for both lenders and businesses.

Cao Sy Kiem, a former central bank governor, was quoted by local news website VnExpress as saying that the new decision on Friday would help bring interest rates closer to market supply and demand.

When lenders were not allowed to negotiate rate with their clients, they would just try to break the law and set higher rates themselves, Kiem said.

He said the decision may cause a lot of difficulties to businesses at first because borrowing costs would surge without the rate cap.

But the lift of the rate cap would help free credit flows and businesses need to think about the greater good, said Kiem, also chairman of the small and medium-sized enterprise association.

The government would take necessary measures to prevent interest rates from going too high, he said.

VietNamNet/Thanh Nien

Tags: banking in vietnam, banks in vietnam, vietnam bank, Vietnam banking, vietnam commercial bank, Vietnam finance, Vietnam financial