The ceiling on deposit interest rates may be lifted soon.

The fact that 15 banks reduced deposit interest rates, even though the ceiling remains at 7.5% according to the National Financial Supervisory Commission, is a signal that the State Bank of Vietnam should soon lift this administrative measure.

The ability of the central bank to self-regulate interest rates without intervention from the State Bank of Vietnam is one of the most positive aspects of the monetary market, as recently highlighted by the National Financial Supervisory Commission in its May economic report.

The National Financial Supervisory Commission believes that consideration should be given to removing the ceiling on deposit interest rates. Photo: Anh Quân.

Although the ceiling on deposit interest rates remains at 7.5%,deposit interest ratesMany banks have adjusted their rates downwards. This was before the State Bank of Vietnam.lower interest ratesFollowing refinancing and discount interest rate adjustments on May 10th, state-owned banks have begun to bring deposit interest rates down to 5-6% per year for terms under 12 months. The first to do so is the Vietnam Foreign Trade Bank (Vietcombank).Vietcombank), followed by the Vietnam Investment and Development Bank (BIDV), then the Vietnam Commercial and Industrial Bank (Vietinbank), and the Vietnam Bank for Agriculture and Rural Development (Agribank). By May 21st, according to calculations by the National Financial Supervisory Commission, 15 joint-stock banks had reduced interest rates across various maturities.

The ceiling on deposit interest rates was introduced in 2011 to "tighten" interest rate levels. At that time, banks competed to attract deposits at high interest rates when liquidity was a concern. As a result, a large amount of capital they raised at high costs was lent to the economy at high interest rates, causing difficulties for businesses.

To date, after more than a year of having a "ceiling," many opinions suggest that it is time to lift this measure and let the market decide for itself instead of administrative measures. However, in a press interview on May 10th, the State Bank of Vietnam itself maintained its stance of continuing to keep the deposit ceiling. Ms. Nguyen Thi Hong, Director of the Monetary Policy Department, stated: "The monetary market has been established in a very difficult way over the past period, so removing the ceiling now might make things even more difficult."

According to a representative of the State Bank of Vietnam, although system liquidity has improved and there is a surplus, some credit institutions still have "not really good" liquidity. "If the ceiling is removed now, these banks may again increase deposit interest rates, leading to higher lending interest rates. Thus, the policy of reducing lending interest rates will not be implemented," Ms. Hong explained.

However, the National Financial Supervisory Commission still recommends that the State Bank of Vietnam should study the appropriate time to abolish the deposit interest rate ceiling to help the market increase its self-regulation capacity.

According to Nguyen Duc Trung, Deputy Director of the Institute of Banking Science Research - Banking Academy, in some countries like the US, a ceiling on deposit interest rates is used when they want to reduce the number of banks. "With a ceiling, smaller banks will gradually lose opportunities for opportunistic business practices and become vulnerable, forcing them to merge with larger banks. The US used this method in the 1980s to reduce the number of small banks," Mr. Trung said. In the case of Vietnam, a country that, according to Mr. Trung, also has too many banks, this method could also be an option.

According to VNExpress - TH