The State Bank of Vietnam decided a cut in deposit rate caps by 1 percent from March 26.

The move, announced on March 25, will see the central bank slash the refinancing rate, a key interbank lending rate, to 8 percent per year from the current 9 percent.

In addition, the discount rate will be cut to 6 percent per year from the current 7 percent and the electronic interbank rate will fall to 9 percent per year from 10 percent.

The dong deposit interest rate cap from 1-month to 12-month terms was reduced by 0.5 percent to 7.5 percent per annum while the rate cap on demand and under 1-month deposits is kept at 2 percent per year.

Interest rates on deposits of over 12-month maturities will be determined by credit institutions based on market demand and supply.

As such, short-term lending rates are now capped at 11 percent for prioritised sectors, including agriculture, exports, supporting industries and small and medium-sized enterprises.

The central bank does not regulate lending interest rate caps for other industries.

Before the central bank’s rate cut, some large banks such as Agribank, Vietcombank, Sacombank and ACB last week also actively cut their deposit interest rates.

Despite the deposit rate cut, lending interest rates remain high at roughly 15 percent, too high for many businesses to afford while consumption remains low.

Outstanding loans at banks in the first two months declined 0.28 percent against December last year while deposits surged 3 percent.

This year, the central bank has targeted credit growth of 12 percent. However, experts said that loans would not increase as much as expected unless lending interest rates were lowered to 10 percent for short-term loans and 12-13 percent for medium and long-term loans.

Last week, SBV governor Nguyen Van Binh also called on banks to cut their lending rates to roughly 13 percent, saying that banks could not lend and would suffer with other industries if they continuously lend at the high rate of 15 percent.

He said banks should accept a fall in profits to be able to increase their lending and ensure sustainable growth.

It was estimated that banks could make a profit if the difference between deposit and lending interest rates was roughly 4 percent.-VNA