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Capital flow to banks slowing down
The growth rate of deposits at commercial banks slowed down in August after increasing sharply in the previous two months, according to the State Bank of Vietnam.
In August, the total deposits at commercial banks reportedly increased by 0.94% over the previous month. The increase was higher than the 0.28% increase of August 2007, but much lower than the 1.47% increase of July 2008.
The VND deposit balance increased by 1.14%, while foreign currency deposit balance by 0.37%. Compared to the end of 2007, the deposit balance has increased by 10.62%.
Statistics show that 0.94% is the lowest increase in the previous five months, much lower than the average level so far this year.
In June 2008, the deposits at commercial banks began increasing sharply compared to five months before. In June alone, the deposits increased by 3.7%, which was even higher than that of the first quarter of 2008, representing the highest increase in the first eight months of the year.
The sharp increase of deposits in June was explained by the dramatically high deposit interest rates applied by commercial banks. The rates offered by the banks soared continuously from 15% in late May to the highest peaks of 19-20% in June-July.
In May 2008, the State Bank of Vietnam began applying a new interest rate policy with the basic interest rate of 12% per annum, which it raised to 14% per annum in June.
The sharp increase of deposits at 3.7% in June helped ease the liquidity problems incurred by commercial banks.
Since June, deposit interest rates have been decreasing and deposit growth rate slowing down.
Commercial banks’ deposit interest rates have decreased sharply from the highest peak in June-July, now at below 18% per annum for VND deposits and below 6% for US$ deposits.
According to the State Bank of Vietnam, the deposit and lending interest rates decreased further in August, with US$ deposit and lending interest rates down more sharply. The interest rates decreased by 0.05-0.9% for VND deposits, and 0.1-0.5% for US$ deposits, while the rates decreased by 0.2-1% for VND loans and 0.5-1.3% for US$ loans.
In the interbank market, the interest rates have also decreased for all terms of loans by 0.79-2.89%. The current highest rate is reportedly at 18.97% for 3-month term loans.
On August 19, 2008, the State Bank released a decision stipulating that the interest rate at which credit institutions lend to each other must not be higher than 150% of the basic interest rate announced by the State Bank of Vietnam.
With such a decision, the banks that have profuse capital will not be able to gain fat profit from lending to other banks at overly high interest rates as they did several months ago. With the current basic interest rate of 14%, the interbank interest rate must not exceed 21%.
Explaining why the capital flow to the bank has been slowing down, some experts say that the warming up of the stock market in recent days has attracted capital from the public to the market.
Regarding credit growth, August witnessed a decrease in loans by commercial banks.
According to the State Bank of Vietnam, outstanding loans in August 2008 increased by 0.79% over the previous month: VND outstanding loans rose by 0.97% and foreign currency loans by 0.19%. The total outstanding loans increased by 16.78% compared to the end of 2007. This means that banks still can lend big sums of money in the last months of 2008 to obtain the 30% credit growth rate as allowed by the central bank.
Since the end of August, commercial banks have begun loosening disbursement, while resuming securities loaning. Experts have predicted that the credit growth rate in September will be higher than the last two months.
VNN
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