Central bank lowers reserve ratio

The State Bank of Vietnam has cut the reserve ratio in local currency at credit institutions to 0.8% from the previous 1.2% per year, applied since 2005.

 

Under a recent decision, the interest rate for the excess amount in dong will remain at 0%. In addition, interest rates have been revised for foreign currency reserves, at 0% for the compulsory level and 0.05% per year for the excess amount.

Meanwhile, the central bank has offered an interest rate in dong at 0.8% per year for the Vietnam Development Bank, the Vietnam Bank for Social Policies, people’s credit funds and micro credit institutions.

The State Treasury will enjoy a deposit rate in dong of 1%, while that of foreign currencies will fall from 0.5% to 0.05% per year. Lastly, the Deposit Insurance of Vietnam will be subject to a rate of 0.8% per year.

Under current regulations, credit institutions are required to deposit compulsory reserves at the central bank and get interest from the sums. Therefore, the central bank’s move will mean a reduction in interest paid to credit institutions, aiming to either supplement the State budget collection or boost lending on open market operations.

However, the decision may have a slight impact as local lenders are required to deposit a small part of their mobilized capital, at around 3% for deposits under 12 months and 1% for those lasting 12 months or longer.

At the end of September, the local banking system reported nearly VND3.65 quadrillion in deposits made by economic organizations and VND4.47 trillion from citizens. BIDV, Vietcombank and VietinBank accounted for 40% of the total deposits in the system, according to SSI Research.

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