The State Bank of Vietnam will soon lift the lending interest rate cap for medium- and long-terms loans in Vietnam dong, the head of the bank’s monetary policy department, Nguyen Ngoc Bao, said on Feb. 23 during an online conference hosted by vneconomy.vn.

“Under a decision of the National Assembly and a directive from Prime Minister Nguyen Tan Dung, the central bank will soon issue regulations allowing negotiable interest rates,” Bao said.

While Bao refused to elaborate further, it is believed that the policy change will be aimed at improving bank profit margins and liquidity and ending a practice of unlawful lending agreements.

Under the Civil Code, the commercial lending rate is capped at 1.5 times the prime rate. Since December, the prime rate has been held at 8 percent, resulting in a cap on lending interest at 12 percent per year. A number of banks have reportedly been charging extra fees to compensate for their high capital input costs.

Meanwhile, the State Bank has already allowed negotiable rates on loans made in US dollars, credit card and consumer loans./.