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Small banks struggle under dong rate cap
Some of Vietnam’s smaller banks are feeling the pinch of tight dong funds, after central bank measures to fight inflation, and a cap on interest rates, bankers said this week.
Vietnam has more than 40 banks, but four state-run banks altogether handle 70 percent of market deposits and lending.
The State Bank of Vietnam, the central bank, has tightened banking liquidity by raising reserve requirements and ordering banks to purchase VND20.3 trillion (US$1.27 billion) of compulsory treasury bills.
Inflation hit 19.3 percent in March, its highest level in more than 12 years.
“Dong liquidity is not a problem for big banks but smaller ones have had a lot of difficulty getting enough dong funds and now they are limited by the 11 percent cap by the Vietnam Banks Association,” a banker in Hanoi said.
Commercial banks agreed from April 2 to set an 11 percent ceiling on dong deposit rates after hiking the rates to as high as 14 percent in March as they scrambled to lure funds to meet the central bank’s higher reserve requirement and compulsory bill purchases.
Last week, the central bank said in a statement that most banks had complied with the 11 percent cap.
However, the central bank admitted “working capital at banks was on a declining trend.”
An official at a branch of Ocean Bank, which has a registered capital of just VND1 trillion ($62.5 million), in the northern province of Hai Duong near Hanoi told Reuters that last week her branch briefly raised the rate on 12-month dong deposits to 12 percent, but had to cut it back to 11 percent this week.
Other small banks are looking for innovative ways to lure deposits.
Mekong Housing Bank, which has a registered capital of nearly $100 million, for instance, offers 10.44 percent on its 12-month deposits plus a 1.2 percent bonus rate, the bank’s website (www.mhb.com.vn) says.
On the interbank market earlier this week, major lenders including the Bank for Agriculture and Rural Development of Vietnam (Agribank), the Bank for the Foreign Trade of Vietnam (Vietcombank), the Industrial and Commercial Bank of Vietnam (Vietinbank) and the Bank for Investment and Development of Vietnam (BIDV),
offered overnight dong loans in a wide range of 5 percent to 10 percent, against 5-9.5 percent last week and up from 4-7 percent at the end of March.
A total of 35 foreign banks holding a combined 14 percent market share of loans, six venture banks, four financial leasing ventures, two wholly foreign owned financial leasing firms and 50 representative offices of foreign banks also operate in the Southeast Asian country.
Ten percent of Vietnam’s 85 million people have bank accounts in a country with about 4,000 bank branches, half of them run by Agribank.
Thanhnien
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