•  "There is an art to managing interest rates"

At the first meeting between the central bank and 12 major commercial banks (G12)-which account for 85 percent of market shares-in Hanoi on October 4. Governor Binh said the SBV will publish loan information to help domestic producers access credit more easily.

The meeting also discussed issues such as falling deposits in Vietnam dong, which affects a bank’s liquidity.

To help increase bank liquidity, especially among small institutions, the SBV plans to access Open Market Operations to re-finance credit institutions, Binh said.

The SBV is also planning to announce its 2012 credit growth plan at the beginning of next month.

The central bank has asked commercial banks to review and tighten their lending in foreign currencies, while applying higher borrowing requirements for companies with revenue exclusively in Vietnam dong.

Deposits and foreign currency lending should be reduced, the SBV said.

Last week, the SBV regulated that non-term deposit interest rates offered by commercial banks and other credit institutions will be capped at 6 percent per year, from October 1.

The cap on deposit interest rates for term deposits of one month or more will remain unchanged at 14 percent at banks and 14.5 percent at credit unions.

In the past few months, a number of commercial banks have flouted the rule by offering higher interest or bonus interest to entice depositors. Some banks have also given depositors overnight interest of 14 percent. These practices introduce a high element of risk into the nation’s banking system, the SBV said.

Small banks have to increase their non-term rates to lure customers from larger banks.

After the circular became effective, banks slashed their non-term deposit interest rates to under 6 percent per year.

Saigon Commercial Bank (SCB) on October 3 announced a non-term deposit interest rate of 4.2 percent per year.

Western Bank posted a rate at 6 percent for one-to six-day-terms, while ABBank listed rates of 3 percent and 6 percent for non-term and one, two, three-week terms.

Customers en masse withdrew deposits after small banks reduced their non-term rates.

At the meeting, the SBV said it is drawing up a draft to sanction banks which offered higher deposit interest rates or bonuses to entice customers.

Accordingly, credit institutions that are found to have violated the regulation will also be temporarily stopped from opening more branches and transaction offices and establishing subsidiaries for six months.