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Rivals wary as Vietcombank pays more for deposits
The state-owned Vietcombank’s Ho Chi Minh City branch has set off concern among rival banks by raising the deposit interest rates by up to 0.66 percent per year.
The bank now offers 10.5 percent a year on one-, two-, three- and six-month deposits and 11 percent on nine-month and one-year deposits.
The move has sent other banks scrambling to make similar increases.
A deputy director of a state-owned bank claimed his bank didn’t have enough funds to maintain the statutory reserves with the central bank after the latter ordered his and other banks to transfer an amount of around VND52 trillion (US$3.2 billion) to the Treasury.
“[This] forces us to think about increasing deposit rates,” he said.
The general director of a joint-stock bank in HCMC said, “A rise in deposit interest rates at state-owned banks always affects private banks since customers tend to prefer state-owned lenders.”
He supported the prime minister’s instruction to the central bank not to cap the deposit interest rate but leave it to market forces instead, he said.
“We are considering increasing the deposit interest rates. We have struggled to give loans for three months since our deposits remain low and unstable,” he said.
Oriental Commercial Bank (OCB)’s general director Vo Van Chau said local banks were confused by the constantly changing regulations.
“The prime minister instructed the removal of the interest rate cap but the central bank hasn’t issued guidelines for it. Once the [PM’s] instruction does take effect, banks will again race to increase rates to attract customers.”
The general director of a large private bank, who asked not to be named, said worriedly, “Cutting interest rates is a disaster for local banks as people will stop depositing in banks and invest in other assets.”
OCB’s Chau said the removal of the deposit interest rate cap was likely to send loan interest rates rocketing upward, warning many clients would struggle to repay their debts if the lending rate exceeded 20 percent per year.
“It will be a hard time for companies whose operations are reliant on money from banks,” an official from a private bank said.
“They will have to focus on improving quality.”
Interest rate controversy
Saigon Commercial Bank announced a plan to offer over 12 percent interest per year on its 270-and 360-day promissory notes to be issued soon, seemingly in blatant violation of the State Bank of Vietnam’s interest rate cap.
In February, the State Bank of Vietnam capped deposit interest rates at 12 percent to stop banks who were relentlessly pushing up therates to attract depositors after they ran into a liquidity crunch caused by the central bank’s tight credit policy against inflation.
Last week banks across the board started to lower their interest rates further in response to the Vietnam Banks Association’s call for an 11 percent cap.
In the meantime, SCB announced its promissory note plan together with a lottery program valued at VND2.5 billion as an added incentive.
The association swiftly expressed its objection to the central bank and SCB, saying the latter’s program would hurt other banks.
Thanhnien
SCB’s president Pham Anh Dung told Thanh Nien his bank’s program had been approved before the central bank or association had capped the interest rates.
The central bank has not responded to the association’s objection.
A closer reading of recent interest rate decisions reveals that on the same day that SCB launched its program, Prime Minister Nguyen Tan Dung issued the order that effectively scrapped all interest rate caps.
Yet, even before the PM’s order, some small banks had been disobeying the bank association’s call since they feared they would lose customers to big banks if interest rates were maintained at 11 percent.
A top banking expert said the association’s decision to lower deposit interest rates was likely to negate the government’s efforts to fight inflation.
“If the real interest rate is negative [nominal interest rate less inflation], people will not save but opt to buy gold – as they are now doing – or spend more, which would exert an upward pressure on inflation,” he said.
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