Raising interest rates, foreign banks denounced of breaking law

Thursday, May 15, 2008
Though seriously lacking capital, no domestic bank dares raise deposit interest rates. Therefore, they have been envious of their foreign colleagues, which have unflinchingly raised deposit interest rates to over 12%, the ceiling interest rate.

Foreign, domestic banks go fishing – for capital

Are the foreign banks violating the law?

The general director of a foreign bank branch in Viet Nam affirmed that his bank is mobilising capital at interest rates not higher than 12% per annum. However, he said that the decision by the State Bank of Vietnam (decision 02) dated February 26, 2008 on setting the ceiling interest rate of 12% was not valid any longer since the Prime Minister instructed the abolition of the ceiling interest rate scheme.

Domestic banks still apply the ceiling interest rate of 12% because they have to follow the association’s agreement on ceiling interest rate. Meanwhile, he said, the agreement is not valid for the banks which are not association members.

When a reporter of Dau tu chung khoan contacted the bank’s staff as a client, the staff said that the bank can offer 13.97% on 1-month deposits of VND200mil and more.

Commenting about the explanation by the general director, the leader of a state owned bank said that Decision 02 is applied for all banks operational in the territory of Viet Nam, including foreign bank branches. Though the Prime Minister has instructed the ceiling interest rate scheme to be abolished, the State Bank has not released any document on abrogating the regulations stipulated in Decision 02. Therefore, Decision 02 is still valid.

There are different ways of understanding the spirit of Decision 02. An official of the State Bank of Viet Nam said that Decision 02 applies to domestic banks only. Therefore, in principle, no one can say that foreign bank branches are violating the law.

Ceiling interest rate scheme needs to be removed

The well-informed circle said that after the Prime Minister instructed the removal of the ceiling interest rate scheme, the Government had a meeting with the State Bank of Viet Nam and the National Advisory Council for Monetary Policies. After the discussion, the Prime Minister preserved his opinion on removing the scheme.

Also according to the leader of the state owned bank, some clients had withdrawn several hundred billion VND from his bank in the last few days, and it is possibly because the clients want to draw out money to make deposits at foreign banks.

“Currently, all banks are trying to dodge the laws to offer interest rates higher than the ceiling rate in order to lure more capital to their banks. There is no need to maintain the ceiling interest rate scheme anymore, as it is exists on paper only,” he said.

A reliable source at the State Bank of Viet Nam said that the 12% ceiling interest rate proves to be unsuitable now, and it is considering removing the scheme.

“The State Bank is discussing measures to stabilise the market if it removes the ceiling interest rate,” the official said. (DTCK)