Banks warned of sanctions against interest rate race

Illustrative photo (Source: VOV)

The State Bank of Vietnam (SBV) stated in a newly-issued document that credit institutions, including foreign bank branches, have intentionally pushed up interest rates for VND deposits of certain terms while having issued certificates of deposit at high interest rates.

Increased interest rates could pose a threat to the stability and sound development of the domestic banking system, resulting in market volatility and potentially leading to a “deposit interest rate race” among various credit institutions.

The central bank is to issue sanctions on credit institutions that infringe upon legal regulations and the bank’s instructions related to interest rates. The SBV asserted that it could narrow the credit growth limits previously assigned to credit institutions if necessary.

Le Minh Hung, Governor of the SBV, has requested that credit institutions stringently abide by its Directive No.01/CT-NHNN dated January 8, 2019 with a focus on stabilizing deposit interest rates as a means of balancing funds and expanding outstanding credit in a proper manner. Commercial banks are also required to obey regulations on deposit interest rates and intensify the control of credit across risky fields.

Previously, a number of commercial banks reportedly rose 0.2 to 0.8 percentage points for interest rates on deposits of a six-month term and beyond. Many banks mobilized deposits of six-month term at the annual interest rate of 8 per cent, equivalent to that of deposits of over a one-year term.

Some issued certificates of deposits for one to five years at the annual interest rate of around 9 per cent or even 10 per cent.