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Borrowers suffer as banks race to boost deposit interest rates
While savers are delighted with rising bank deposit interest rates, borrowers are being squeezed by an associated steep increase in loan interest rates.
The central bank raised the benchmark rate to 14 percent from 12 percent a year on Wednesday.
The hike allowed banks to offer annual deposit rates of up to 21 percent a year.
As banks raced to raise deposit rates, they also lifted lending rates and announced new fees for borrowers.
One Ho Chi Minh City company director told Thanh Nien Thursday her firm’s bank had offered a loan of VND850 million (US$51,170) which had total interest payments of VND1 billion ($62,205).
“The bank asked us to pay a security deposit worth 15 percent of the loan’s value,” she said.
“The deposit interest rate for the security is equal to one for a checking account [the bank’s lowest deposit interest rate],” she said.
A computer parts trader experienced a similar problem.
A company representative said a bank had agreed to lend the firm VND2 billion ($120,409) with an interest rate of 1.9 percent per month [22.8 percent per year], including fees.
But the lender Thursday informed the company it would raise the rate to 26 percent a year, including fees and asked the borrower to pay a security deposit worth 21 percent of the loan’s value.
The bank offered a mere 3 percent per year on the security deposit.
Despite the state bank banning banks from charging fees for borrowers and lifting the lending interest rate higher than 21 percent per year, the actual rate reportedly ranges from 22 percent per year to 24 percent per year.
According to a source from commercial banks, lenders have various “technical approaches” to push the deposit interest rate above 21 percent per year without violating the central bank’s regulations.
‘Central bank should intervene’
Critics said banks liquidity, or amount of available cash, was still too low, which is why they were trying to attract more deposits with higher interest rates.
Therefore, the central bank should halt the interest rate race by issuing bonds to finance loans to struggling banks.
HCMC Economics University’s Dr. Tran Hoang Ngan warned banks shouldn’t ask borrowers to pay security deposits.
“The central bank’s move [raising the benchmark rate] showed it was keeping close eye on the market,” Ngan said.
“When the inflation is under control, the base rate is likely to be reduced".
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