SBV ends rate-lowering race

In an effort to stop unhealthy competition among banks, the State Bank of Vietnam has issued a regulation that would prevent banks from offering loans at lower rates than deposit rates.

Customers make loans at a VietinBank’s branch in Bac Ninh Province. SBV has issued a regulation that would prevent banks from offering loans at lower rates than deposit rates in an effort to stop unhealthy competition among banks.

As capital has piled up at banks, some banks are offering lower borrowing rates in an effort to extend more loans to businesses.

Nguyen Phuoc Thanh, deputy governor of SBV, said if the lending rate was too low, many businesses could take deposits from one bank and re-deposit them in another bank to get benefits.

SBV said this practice was increasing the volume of bad debts, leading to low liquidity and even losses.

Le Tham Duong, head of the HCM City Banking University’s Business Management Department, said banks were seeking ways to attract customers, regardless of price.

He said that a regulation was needed to ensure fair competition among banks.

However, several other commercial banks said the regulation was inflexible, citing the need to lower rates to attract customers.

They said banks would not necessarily suffer losses because they can offer other loans at a higher interest rate to compensate for the loans with low interest rates.

In addition, not all customers are allowed to get the preferential lending rate. Only customers in good standing who meet bank requirements can qualify.

Banks said that SBV should create a more flexible policy and ask banks to closely monitor the purpose and use of loans.

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If banks did this, then businesses would not be able to make re-deposits in other banks to receive benefits, they said.