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Which should prevail, legal provisions or usual practice?
Arguments have been raised about whether depositors should be fined if they draw money from deposits before they are due. Legal provisions stipulate that they have to pay a fine, while Vietnamese depositors say general practice should be respected, according to which no fine is imposed.
Easy to make deposits, not easy to draw out money
T.N.H, Director of HCM City-based P. Company Ltd, related that her company deposited VND4.6bil at HSBC’s HCM City branch. Two accounts were opened. On May 29, 2008 VND2.6bil was put in a 12-month term deposit with interest rate of 13.5% per annum; on June 12, 2008 VND2bil was put in a 6-month term deposit, interest rate of 15% per annum.
As H. needed money urgently, she had to draw the money out before maturation. On June 13, she e-mailed HSBC, saying that she would draw out the deposits in three days.
HSBC, in its response, clearly stated that P’s deposits were fixed-term deposits, so P could not draw the money out before it was due, or she would be fined.
HSBC suggested two options: either the client cancel the depositing contract or sign a contract on borrowing money from the bank. However, in both cases, the client would have to pay high fees.
HSBC also said that if she insisted on withdrawing the money before it was due, she would be fined VND200mil on the VND2.6bil deposit and VND59mil on the VND2bil deposit. It also advised the client not to choose the method of breaking the depositing contract, because it would take 7-10 days to fulfill the procedures for a loan.
HSBC quoted international practice and Vietnamese legal documents to show that it was acting accordingly.
However, P. did not accept the fine. HSBC suggested other solutions. Finally, on June 25, P company accepted paying VND54mil to get back the deposit of VND4.6bil.
HSBC said that it had to apply legal provisions creatively in coming up with the fine of VND54mil, and that the bank had imposed a fine on the VND2.6bil deposit only. The client still could draw out the VND2bil deposit without having to pay any fees.
H. said that when she made the deposits, no HSBC official explained the bank’s policy to her and warned her about fines if she drew money out before it was due.
Imposing fine? This isn’t how domestic banks do it
A banking expert said that in 1989, the State Bank promulgated a document which said that depositors would not get interest on the deposits they took out before they were due. In 2004, the central bank promulgated another document on the issue with additional provisions which came in line with international practice.
With the provisions, if depositors have agreements with banks about withdrawals before maturation and they have declared the withdrawals in advance, they do not have to pay fines, while they can enjoy the interest rates on demand deposits applied by the banks.
However, the regulation was not promulgated as depositors did not accept it. Commercial banks themselves did not apply the regulation because they found it rigid, and made it difficult for banks to lure capital from people.
As a result, in 2006, the central bank released a regulation that was ‘softer’.
Instead of paying the demand deposit interest rates to depositors who draw out money early, commercial banks themselves can define the interest rates they pay to clients if the depositors have agreements with banks about before-due withdrawals and have declared the withdrawals in advance.
In fact, banks have been flexible in applying the regulation. They always clearly state when depositors can draw back money before it is due, and when they cannot.
Some banks have designed depositing products, which allow depositors to enjoy high interest rates even if they draw money out early. Other banks ask depositors to sign a document which says they cannot draw back money before it is due.
SeABank once applied the interest rate of 19.2% on 13-month term deposits, the highest rate in the market at that time. However, it clearly stated that in order to get the high interest rate, depositors must deposit VND80mil at least, and commit not to draw back money before due.
VNN
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