SBV’s decision may draw VND 50 trillion from market

It is estimated that around VND50tril ($3.12bil) could be taken from circulation with the new decision by the State Bank of Vietnam on raising the compulsory VND reserve rate.

Under the new decision, the compulsory reserve rate applied for under-12-month term deposits has been raised from 5% to 10%. The rate for Agribank is now 8% instead of 4% as previously applied.

The new decision has not been welcomed by commercial banks. The Director General of a joint stock bank said that he was not pleased with the decision as it would make operation expenses higher, though he acknowledged that the usable capital of banks was relatively high now and the decision would not badly affect the banks in the short term.

However, experts have warned that with such a high compulsory reserve rate, banks will be short of usable capital in several months.

An expert from a foreign bank branch has warned that the impact of the decision on raising the compulsory reserve rate will be clearly seen in three months. He said that the market would see capital shortage and banks might consider raising interest rates.

One month ago, members of the Vietnam Banking Association reached an agreement on lowering the interest rates on bank deposits. However, with the new decision from SBV, the agreement may be voided and the interest rates may be raised again.

SBV is now trying to make a move to curb inflation and control credit quality. Most recently, it decided that outstanding loans funding securities trading deals must not exceed 3% of banks’ total outstanding loans.

Source: VNE