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Deposit interest rates likely to decline further

Deposit interest rates offered by commercial banks are expected to fall by 1 per cent, according to senior economists.

Dr. Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, said deposit rates must be cut further.

“The State Bank of Viet Nam will decide the time to slash the deposit rate based on specific conditions,” he told Dau Tu newspaper.

The prime minister has said that it was necessary to expand the consumption market and cut costs, mainly reduction in loan interest rates, in order to support domestic enterprises, according to Ngoan.

Dr. Tran Hoang Ngan, deputy rector of the HCM City Economics University, agreed with Ngoan, saying that a further reduction in the interest rate was urgently needed.

He said that high interest rates were one of the main reasons that the private economic sector””s investments had been low.

If the interest rate problem is not settled soon, the economy could fall into a dangerous situation in which economic growth would be relied upon foreign-invested companies.

“In 2013, the central bank””s most important task is to fight recession,” he said. ”Interest rates should be cut so more loans can be given to the private economic sector. If the private sector cannot access to bank loans, the national economy would face peril.”

“I think that deposit interest rates in the coming time should stand at between 7 per cent and 8 per cent per annum, while loan interest rates should be fixed between 11 per cent and 12 per cent per annum.”

Lowering lending interest rates, increasing workers””salaries and launching more demand-stimulation packages would all help increase the economy””s aggregate demand, Ngan said.

SBV Governor Nguyen Van Binh also said in late July that the deposit interest rate would likely drop to 8 per cent by the year-end.

Some commercial banks have already cut their deposit interest rates, keeping the highest level of 12-12.5 per cent per year.

The central bank””s interest-rate cap of short-term deposits is 9 per cent per annum, but commercial banks are allowed to offer their own interest rates on deposits with terms of 12 months or more.

As a result, most commercial banks are offering a 13 per cent interest rate on long-term deposits per year.

However, independent market experts said that a further reduction in deposit interest rates was not feasible because commercial banks would not be able to mobilise people””s savings if the deposit interest rate was further cut.

Dr. Ngoan said that historically in Viet Nam people””s savings at banks had regularly increased, even when the deposit interest rates were only 5-7 per cent per annum.

A director of a commercial joint stock bank in Ha Noi said that his bank was ready to cut deposit interest rates because it had enough money.

However, it was necessary for the central bank to have strict control as well as severe punishments for banks that show signs of violating interest-rate regulations.

The current lending interest rates are not a problem for many enterprises. However, they do not want to borrow money since they cannot sell their products, according to the bank director.

Because they have found it difficult to increase credit growth, many banks have recently bought more government bonds.