Commercial banks in Vietnam have proposed to remove the ceiling interest rate scheme, saying it has caused major difficulties in capital mobilization and lending and if this situation continued it will not be good for the economy.
The proposal was made at a meeting to review Ho Chi Minh City’s banking operations on January 26.
Bankers said that because lenders could give loans at the highest rate of 150% of the prime rate, or 12%, the margin between borrowing and lending rates was too small so they must give loans at the highest rate for all kinds of customers.
There is, thus, no difference between low and high risk customers, between preferential sectors and discouraged sectors, and between short and long terms, said Le Kim Hoa, director of the HCMC Branch of Bank for Investment and Development of Vietnam (BIDV).
For that reason, outstanding loans for consumption purposes, which can be lent at negotiated rates, rose sharply in 2009, Hoa noted.
Statistics from the HCM City branch of the State Bank of Vietnam showed that outstanding consumer loans rose by 69.6% to VND37.26 trillion by last year-end.
Bankers also complained that they found difficult to mobilize middle and long-term capital given the same borrowing rates as most depositors choose short terms to put their money in banks.
“So disbursement for big projects will be hard this year,” Hoa said.
Nguyen Xuan Canh, director of the HCM City Branch of Bank for Agriculture and Rural Development of Vietnam, said that when the prime rate was 14% in 2008, bank management was easier and the lending rates were different for different customers.
He suggested the central bank reconsider management based on the base rate mechanism which made banks inflexible in their operations.
Tran Van Vinh, general director of Orient Commercial Bank, said maintaining the ceiling lending rate will also encourage high risk customers to borrow capital. He called on the central bank to consider allowing banks to collect reasonable fees when giving loans.
At present, the ongoing liquidity crunch is forcing local commercial banks to break the law on interest rates in order to raise enough funds for lending.
They are offering bonus percentage points on deposits and collecting high rates of up to 21% per annum on lending through extra fees for various services.
The State Bank of Vietnam plans to keep credit growth at 25% this year, much lower than the 37.73% last year. (Saigon Economic Times)
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