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Banks got headaches from SBV’s decision
The staff of the forex division of a state-owned bank had an urgent meeting late last Friday. The decision was made after the meeting that the bank would withdraw all US $500 million it deposited at the State Bank of Vietnam to put at its coffer.
US$ interest rates
The bank still does not know how to use the money and whom to lend to. However, the bank still decided to take back the money as the interest rate for the money had reduced to a very low level.
The bank’s move is expected to be followed by other banks.
With the Decision No. 790 released by the State Bank of Vietnam late last week, since April 3, 2009, the interest rate applied to the excessive compulsory reserves at the central bank of Vietnam has been lowered to 0.1% per annum, or much lower than the previously applied 0.5% level.
The decision has caused a stir among banks as the excessive compulsory reserves account for a big proportion in banks’ total mobilized capital in foreign currencies. As for the said above bank, the proportion is over 50%.
Currently, the demand for dollar capital has been decreasing, while the deposits still keep rising. In the first quarter of the year, commercial banks’ loans in foreign currencies decreased by 2.24%, while mobilized capital increased by 3.6%.
As the mobilized capital was bigger than the loans, banks have to either to deposit at foreign banks, or deposit at the State Bank of Vietnam.
The 0.5% interest rate the central bank paid previously for the excessive compulsory reserves proved to be a relatively high level if compared with the rates on the international market.
The US Federal Reserve’s interest rate is just 0.25% now, while commercial banks get between 0.2-0.3% per annum only for depositing at foreign banks. Therefore, the move by the central bank on slashing interest rate proves to be reasonable behaviour.
The lower interest rate will force commercial banks to slash further the interest rates at which they mobilize from the public. Meanwhile, the sums of foreign currencies banks take back from the central bank are thought to be deposited at foreign banks.
Some analysts said that the central bank’s move proves to ‘kill two birds with one stone.’ With the decision, the central bank does not have to pay high for the excessive compulsory reserves any more. This will also force commercial banks to purchase Government bonds in the upcoming issuances. If so, the Ministry of Finance, instead of issuing bonds on the international market at high interest rates of between 9-10%, will have to pay only 3%.
VND interest rates
As mentioned above, the reduction of interest rates for excessive compulsory reserves will certainly lead to the reduction of the interest rate for foreign currency capital mobilization. The close link between the interest rate and exchange rate has made banking experts understand that the move by the central bank signals the further cut in basic interest rates in a few more days.
Khalil Belhimeur, an expert from Standard Chartered Bank, also said that the further cut of the basic interest rate proves to be possible which aims to give better support to the national economy.
The rumour about the basic interest rate cut to 6% has been spread among banks these days. However, the information has not been applauded by commercial banks. The 6% basic interest rate means that the ceiling lending interest rate would be only 9%.
Meanwhile, the Vietnam Banking Association said that it is going to send a document to the State Bank of Vietnam, suggesting not slashing the basic interest rate further.
dau tu chung khoan
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