Vietnam Town

Invention in adverse times

For banks across the board, this is good news.

Earlier this year, the central bank capped deposit interest rates at 12 percent per annum to prevent commercial banks from pushing up interest rates to attract deposits.

Before the cap, many banks had experienced intense cash shortages as the central bank tightened credit to fight inflation by raising mandatory cash reserves and forcing banks to buy treasury bills.

With deposit interest rates capped at 12 percent, commercial banks have come up with diverse ways to attract savers.

Many banks have started to raise interest rates on short-term deposits as the rates they offer on long-term savings have already hit the cap.

Last Tuesday, ANZ increased the interest rate on one-to-six-month deposits of more than VND20 million to 12 percent per year.

HSBC has also raised interest rates on dong deposits by 2.2-3 percent per year.

Last Saturday, Saigon Commercial Joint Stock Bank (SCB) raised interest rates on short-term deposits as well as its non-term interest rate to 9 percent per year – presently the highest level among banks for non-term interest rates.

SCB also started to offer an 11 percent per year interest rate on deposits of three to six days.

A few days later, Vietnam Export and Import Commercial Joint Stock Bank launched its “24-hour overnight saving” program which pays interest rates on every new amount deposited 24 hours after the deposit – in addition to the 10 percent per year interest rate on the initial installment.

Some banks, including SCB, are also offering gold-insured saving programs.

With SCB’s program, for example, interest rates are calculated in dong or gold – whichever is more profitable for customers at the end of the term.

Many banks say that the 12 percent interest rate cap is forcing them to dish out as many promotion programs as they can to attract the cash they need to lend.

With the cap removed, many banks are now breathing a sigh of relief.

Immediately following the central bank’s announcement, the Bank for Investment and Development of Vietnam (BIDV) announced its new deposit interest rates.

According to BIDV board chairman Tran Bac Ha, starting tomorrow, BIDV will raise its maximum interest rate on deposits of six to 12 months to 13.5 percent per year.

Deposits of less than six months and above 12 months will be offered slightly lower rates – 13.3 percent per year and 13 percent per year respectively.

Ha said deposit interest rates at commercial banks would vary depending on banks’ “health” and their demand for deposits.

But for all banks, “the pressure is now removed,” he said.

Adaptation

Besides the base interest rate, the central bank will also raise the discount and refinancing rates from their current level of 6 percent to 11 percent and 13 percent respectively.

Speaking at the press conference announcing the adjustments, central bank governor Nguyen Van Giau said the old rates had been maintained for too long and were thus “removed from actual market fluctuations and merely formalistic.”

People in need of loans are now hoping that deposit interest rate hikes will fill banks with cash, enabling lenders to charge less interest on loans.

Banks across the board have been toughening on credit by ending expiring loans, screening new applications more closely and charging high interest rates.

Experts have also been urging the central bank to remove the 12 percent cap as the first step toward maintaining a positive real interest rate.

Many agree that with a little caution, keeping deposit interest rates above the rate of inflation to encourage savings would help Vietnam move out of its current economic slump.

Le Tham Duong from the Ho Chi Minh City University of Banking told Tuoi Tre newspaper that banks would not raise deposit interest rates too high as they would have to increase interest rates on loans to offset the higher rates they pay on deposits.

“But if loans become too expensive, no business will want to borrow,” Duong said.

“And banks don’t want to risk leaving their money idle.”

Director of the central bank’s monetary policy department Nguyen Ngoc Bao agreed.

Speaking at Saturday’s press conference, he said the new regulation would allow deposit interest rates to fluctuate for a while but that they would eventually settle at a stable level.

The HCMC University of Economics banking department head Tran Hoang Ngan told Thanh Nien after the central bank announcement that Vietnam should use a “benchmark inflation rate” rather than the consumer price index (CPI) to regulate interest rates.

Ngan said this rate, which is used throughout the world, is often lower than the CPI as it only takes into account monetary factors – rather than supply/demand factors, or unusual factors such as natural disasters and diseases.

Giau said the central bank was doing its best to develop a way to help commercial banks with big deposits lend for profit without overextending credit.

The central bank has capped credit growth at 30 percent this year to help reign in inflation.

But bank lending has already grown more than 14.7 percent, almost half of the 30 percent limit.

Reported by Hoang Ly TNOL