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Interest rates down, money not flowing to banks anymore
Over the last two weeks, deposits made at banks in Hanoi and HCM City have been witnessing sharp decreases. This thing has never been seen in Hanoi and HCM City, the two biggest monetary markets in Vietnam.
According to the HCM City Branch of the State Bank of Vietnam, by April 16, 2008, the capital mobilisation balance had decreased by VND9,225bil compared to the beginning of the month. The deposits had decreased by 0.28% for joint stock banks, and 1.74% for state owned banks. The biggest decreases were seen in the deposits from businesses and institutions.
In the last few days, very few clients have made transactions at banks. A joint stock bank in Hanoi said that on April 17 morning, few clients came to make deposits at the bank.
According to the HCM City Branch of the State Bank of Vietnam, institutions deposit less money these days because it is now very difficult to borrow money from banks (banks have to cap the credit growth rate at 30% at maximum for 2008). Therefore, big groups have decided to keep money to maintain their production and business, or lend to their member companies.
Sources say that some institutions, which are founding members of other economic groups, have drawn money back to send the money into accounts to be blockaded as required by the laws in the procedures for setting up new banks of finance companies.
Explaining the decreases in the deposits from the public, analysts say that the idle capital among the public has been running out as a result of the commodity price increases. They now have to spend more money for daily life. The idle money they had was deposited at banks in February 2008, when banks offered high attractive interest rates.
The capital shortage is giving commercial banks headaches. The interest rate on the inter-bank market on April 17 soared to 22% per annum (1-month term loan), an increase of 11% over April 2.
Despite the capital shortage, banks cannot raise deposit interest rates to attract more money as the ceiling interest rate has been set at 11% per annum.
The State Bank of Vietnam, though not yet having released any legal document lately related to the ceiling interest rate, has been trying to persuade banks to keep the current ceiling interest rate. Meanwhile, the Vietnam Banking Association has sent dispatches to every bank, asking them not to raise deposit interest rates.
The monetary market has become so hot that analysts anticipate that commercial banks will soon break the agreement on applying the ceiling interest rate of 11% per annum.
The Saigon Commercial Bank (ACB) was the pioneer in breaking the agreement as it launched a programme on issuing VND3tril worth of promissory notes with the interest rate of 12% per annum (interest paid right at the depositing). As such, the real interest rate the bank offers is 13% per annum.
The Saigon-Hanoi Bank (SHB) is now offering the interest rate of 11% per annum, but paying interest right at the depositing, so the real interest rate is 12% per annum.
Small banks have threatened that they are going to raise deposit interest rates to over 11% per annum, saying that they need to offer more attractive interest rates in order to compete with bigger banks in capital mobilisation.
In fact, small banks cannot mobilise capital from the public at the interest rate of 12% per annum, and they have to borrow money from bigger banks on the interbank market at the interest rate of 14% (overnight) and 15-16% (1 or 2-week term loans), which proves to be a paradox.
Leaders of banks, including big state owned banks, say that they want to raise deposit interest rates in order to ensure liquidity. However, no bank dares trigger a new interest rate race. Only the banks which previously offered interest rates lower than the ceiling interest rate of 11% have pushed their deposit interest rates up to the ceiling level.
Vietcombank HCM City Branch on April 14 raised its interest rates by 0.06-0.66% per annum for all kinds of deposits.
Meanwhile, small banks which have been shifted to operate as urban banks from rural banks have been maintaining the high interest rate of 12% per annum. They have not yet cut the rates to below 11% as requested by the banking association.
VNN
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