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New bank interest rates benefit depositors, cause difficulties for borrowers
The State Bank of Vietnam’s recent decision to allow commercial banks to raise their deposit interest rates has staged a race among these banks. While depositors are benefiting from the move, businesses are finding it more difficult to obtain access to bank loans.
A new race is unlikely
On May 21, the Vietnam International Bank (VIB Bank) and Military Bank (MB) announced their maximum deposit interest rate of 15 percent, while the Southeast Asia Bank (SEA Bank) offered a record high rate of 15.6 percent.
According to Luu Duc Khanh, general director of the An Binh Bank (ABBank), the ceiling caps on rates will be adjusted between 13.5 and 15 percent, depending on the banks’ short- or long-term business strategies.
There is growing concern that in the face of capital shortages, banks will enter a new race for interest rates regardless of high risks. However, specialists say this race is not as long as it was early this year because it is limited by the maximum lending interest rate of 18 percent per year fixed by the State Bank of Vietnam.
The high interest rates have lured a large number of depositors because they think they will bring considerable benefits if the inflation rate is lower than the interest rate.
The Ho Chi Minh City Housing Development Bank (HDBank) said that the number of depositors has increased by 30-40 percent in the first days since the 14-percent cap was applied on May 20. The Foreign Trade Bank of Vietnam (Vietcombank) also announced an increase of 30 percent in the number of depositors recently.
Many banks said the application of the new deposit interest rates will help them mobilise additional capital and improve their liquidity. According to banking experts, once the liquidity of the market is improved, lending interest rates will be lowered and banks will no longer face such high risks. In addition, when a large amount of capital circulated in the market is deposited in the banks, this will reduce pressure on inflation.
More difficulties for businesses
Many banks complained that by applying the high deposit interest rates, they will gain almost no benefit, except for guaranteeing their liquidity and maintaining their regular clients. Therefore, they agreed to either impose extra fees on borrowers or limit borrowing, because the annual 18 percent interest rate fixed by the State Bank of Vietnam is currently lower than the level they have applied so far.
The Southeast Asian Commercial Joint Stock Bank announced that borrowers will have to pay an additional 0.9 percent credit management fee as well as the lending interest rate of 1.5 percent per month. As a result, the lenders have to pay an interest rate of 2.4 percent per month for their borrowing. Meanwhile, the Export-Import Bank of Vietnam (Eximbank) said it will not consider borrowers that have registered for loans after the new interest rate came into effect. The move has caused numerous difficulties for businesses, especially small-sized ones, in gaining access to bank loans.
According to banking expert Nguyen Duy Lo, to help commercial banks make a profit, the State Bank of Vietnam should consider reducing the compulsory reserves ratio from 11 to 9-10 percent and increasing the annual lending interest rate to 20 percent. In the meantime, commercial banks should reconsider their fees.
VOV
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