The State Bank of Vietnam (SBV) has revealed its plan to cut deposit interest rates and asked its asset managment arm to buy more bad debts from the local banking system.

The plan was mentioned in a Friday meeting held by the central bank in Hanoi.

SBV’s move aims at boosting lending by cutting the financial costs and reducing bad debts for local banks, thus enabling them to lend more. It will also help reduce the borrowing costs for local businesses.

“Once macroeconomic stability and sound liquidity are achieved, the central bank will consider removing the deposit interest ceiling,” the Vietnam News Agency quoted Nguyen Thi Hong, head of SBV's Monetary Policy Department, as saying.

Though the popular current cap for short-term deposits is around 7 percent, many banks have already trimmed the rates beforehand.

“It [the cap] is no longer a meaningful policy tool as many banks have already reduced it,” she added

“In the coming months, the SBV will continue to require local credit institutions to reduce annual lending rates to below 13 percent and housing loans to 5 percent, down 1 percent from last year,” VNA reported.

Regarding the real interest rates on the market, Hong said generally the interest rates for deposits and loans remained stable as money from local depositors have returned to the banking system after Tet.

With abundant liquidity, some banks have reduced desposit interest rates for short-term deposits, mostly 1- to 2-month terms, by about 0.2-0.5 percent per year. For longer terms, the reduction is about 0.1 percent per year.