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Experts say dong interest rate increases inevitably
The dollar and gold deposit interest rates have been increasing sharply. Therefore, experts believe that the dong interest rate increases are inevitable.
In order to prepare for the implementation of the State Bank’s Circular No.13 on required capital adequacy ratio, commercial banks these days are trying to mobilize more capital, while hesitating to expand credit.
This would make it impossible to ease interest rates as instructed by the State Bank and the Government. Especially, experts believe that the dong interest rates would increase in the time to come.
It seems that commercial banks have begun a new interest rate race, when they launch a lot of promotion campaigns in order to attract more capital in local currency (VND). Orient Commercial Bank (OCB), for example, has launched a new promotion programme, under which it offers very attractive interest rate for demand deposit at 5.8 percent per annum. Sacombank, Asia Commercial Bank (ACB) and Eximbank all are also offering preferences to depositors, while the average deposit interest rate applied by the banks is 11.2 percent per annum.
With the continued promotion campaigns, the dong deposit interest rates now tend to increase. Some commercial banks even give cash to depositors as gifts. The sharp dollar interest rate increases in recent days (the interest rate offered by banks is now at 5.5 percent per annum at the highest level), has put a hard pressure on the dong interest rates.
The inflation rate in 2010 is forecast to stay at 7-7.5 percent per annum. Meanwhile, the deposit interest rates offered by banks now are 11-11.2 percent per annum, which mean that depositors now can enjoy the real positive profit of four percent per annum. However, depositors now still expect higher deposit interest rates, because they fear that the inflation rate would be higher than forecast this year. Dr. Tran Du Lich, Member of the National Advisory Council for Monetary Policies, also said that that Vietnam should beware of the high inflation.
Commercial banks are trying to attract as much capital as possible, which has distorted the market interest rate performance. At present, the same interest rates of 11-11.2 percent are being applied to both short and long term deposits. Meanwhile, if counting on bonus interest rates and gifts offered by banks to depositors, the actual interest rates depositors can enjoy would be much higher than 11.2 percent.
According to Dr. Le Xuan Nghia, a well-known economist, the competition among banks to attract deposits would be even stiffer, if the State Bank does not amend some regulations in Circular 13.
The circular, which takes effect on October 1, 2010, stipulates that commercial banks can lend no more than 80 percent of their reserves for lending.
The legal document restricts banks from issuing loans from demand deposits lodged by the State, State entities, the social insurance fund or commercial credit organisations. The interest rate risks will lead to bad debts, while at present, not all commercial banks follow the regulation on the proportion of short term capital they can use for long term loans.
Under the current regulations, banks can only use 30 percent of mobilized short term capital for long term loans.
Since the deposit interest rates are forecasted to stay firmly at high levels, analysts believe that the lending interest rates will not be eased. Banks are now providing loans to businesses at the interest rates of 14-15.5 percent per annum and to individual clients at 15-17 percent per annum, the interest rates that experts believe are unaffordable for businesses.
The overly high interest rates have kept many businesses away from banks. Especially, since the US and the European economies are recovering slowly, which means the export markets remain narrow, businesses dare not borrow loans to push up production.
Many months ago, the Government instructed the State Bank to take actions to ease lending interest rates in order to make loans accessible for businesses. However, the interest rates remain overly high, and experts believe that the interest rate decreases would still be an impossible mission in the time to come.
vietnamnet, DTCK
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