Rising Interest Rates Threaten Business Expansion: Former SBV Governor

Tuan Minh

10:46 15/03/2016

BizLIVE - Upward interest rates at banks are posing threats to the expansion of businesses in 2016, a former central bank governor said.

Rising Interest Rates Threaten Business Expansion: Former SBV Governor

An employee counts Vietnamese dong bank notes. (Photo: Internet)

Hikes in interest rates by Vietnamese banks, which are under liquidity constraints, may limit businesses in the country from expanding this year, said Le Duc Thuy, former governor of the State Bank of Vietnam (SBV) said at a conference on the domestic financial market.
Interest rates went up at the end of 2015 and this trend continues into 2016 as banks face liquidity troubles, Mr. Thuy raised concern at the event held by the National Financial Supervisory Commission (NFSC) in Hanoi on Monday.
“Rates continue to climb, possibly by one to two percentage points this year from the average in 2015. Thus it is obvious that enterprises cannot expand operations normally as they did last year,” he added.
Increases in deposit rates could send the average long-term lending rate reaching 11% per year while a number of loans could bear higher rates, Mr. Thuy said.
The former SBV governor asked for analyses on imbalances between deposits in foreign and domestic currencies and loans, and the reasons domestic banks have taken out large loans from foreign partners while USD-denominated deposit rate stays at 0% at home.
Former SBV Governor Le Duc Thuy speaks at a conference held by NFSC on March 14. (Photo: VnExpress) 
He pointed out that the SBV-dictated zero rate for USD-denominated deposits had not proved effective as it had not prompted forex holders to switch to dong holdings.
Speaking at the event, NFSC Vice Chairman Truong Van Phuoc ascribed the upward pressure on interest rates to rapid medium- and long-term credit growth.
Lending in medium- and long terms expanded 31.1% in 2015 thanks to strong injections for the real estate sector and the restructuring of debts under the SBV’s Decision 780.
Mr. Phuoc commented that interest rates could be been lowered further in 2015 which recorded slower inflation. However, the reshuffle of capital at banks and the revision of the SBV’s Circular 36 could spike interest rates, he explained.
Interest rates have been on the rise since banks boost mobilization in anticipation of the review of Circular 36, which may reduce the percentage of short-term capital used for medium- and long-term lending to 40% from 60% currently.
After the Tet holiday, which fell in early February, a number of banks give under-the-table bonus for less-than-six-month deposits. Meanwhile, they have pushed up rates for more-than-12-month deposits to over 8% per year in a bid to attract cash holders.