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Ceiling interest rate removed, banks’ capital profuse
With higher interest rates, banks’ coffers are now brimming with money to lend, which means that from now, banks can resume pumping capital into the national economy.
More money flowing into banks
Last week, banks continued raising the interest rates of gold and VND deposits. Some banks raised interest rates two or three times and offered promotional programmes. New levels of interest rates have been taking shape with the rate of 15% per annum for VND, 7% for US$, and 6.5% for gold deposits.
Most banks have been competing in mobilising short-term capital (overnight, one-week, two-week deposits). The general director of a joint stock bank said that deposits being opened at the bank have increased by three-fold since the ceiling interest rate scheme was removed. 70% of the deposits are short-term (from one-week to two-month term deposits). A joint stock bank has reported the increase of VND4tril in capital in the last month.
Nguyen Van Hao, an investor on Saigon Gold Trading Floor, said that making overnight deposits at banks now is a wise choice. It is not so easy to find investments on gold trading floors as gold prices fluctuate all the time. Meanwhile, banks are offering relatively high interest rates for short-term deposits. This allows investors to surf for investments without taking any risks.
How much money will outflow from banks?
Having profuse capital, banks do not have to think much about how to mobilise capital now, but about how to lend it.
As banks are not allowed to have the credit growth rate of more than 30%, they are now focusing on funding short-term investment projects. Moreover, as banks’ capital mostly is short-term capital, they have to limit funding medium- and long-term projects.
Nguyen Dinh Tung, Deputy General Director of VIB Bank, said that when interest rates increase, investment activities decline. Interest rates ‘choose’ the projects that can bear high interest rates.
Bankers say that the central bank needs to reconsider the policy on credit growth in 2008. If the central bank insists on the 30% credit growth rate cap, banks will not be able to provide more loans, though the national economy lacks capital.
Experts also say that the credit growth reduction should be carried out gradually instead of at once, as a dramatic change could create difficulties for enterprises which have unfinished business expansion projects. In 2007, the credit growth rate reached 58%, while it must be no higher than 30% this year.
VNN
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