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Interest rate war makes capital go around
Though commercial banks have continuously raised deposit interest rates, the banking system cannot mobilize more capital from the public. The money just transfers from one bank to another.
Most of the banks are now quoting deposit interest rates at 12 percent at maximum, but in fact, they have quietly raised the offered deposit interest rates to 13, or even 14-15 percent. Why? They have to quote interest rates at 12 percent, because they have to fulfill their promise to keep the deposit interest rate at 12 percent. But in reality they have to pay higher interest rates to depositors because they want to lure more capital from the public.
As usual, joint stock banks always lead the “interest rate war”. Especially, SeABank and Kien Long Bank are quoting the official interest rate at 13 percent per annum, or one percent higher than the committed ceiling level.
Meanwhile, Habubank, though quoting the maximum interest rate at 12 percent, the bank’s officers said the actual interest rate depositors can get would be 13 percent, or even 13.5 percent per annum for deposits of one billion dong or more.
In the savings books, the deposit interest rate will be written at 12 percent per annum, but depositors will receive cash “gifts” which have values equal to the gap between the official interest rate and the actual interest rate.
Most of the banks, both big and small, joint stock banks or state owned, are trying to dodge the laws by offering gifts to depositors in order to attract more capital. Loyal clients who deposit large sums of money (Several billion dong), will get “special care” from the banks (They can make transactions at VIP rooms of the banks or right at their homes). VIP clients can even negotiate the deposit interest rates with banks.
Explaining the interest rate war, General Director of Eximbank, Truong Van Phuoc, said that no bank can stay outside the current war, because they have to mobilize capital to ensure their liquidity and to satisfy the demand for loans which is always very high at year end.
However, analysts have warned that even with higher deposit interest rates, the banking system will not be able to attract more capital. The money just runs around, from one bank to another. People will withdraw capital from the banks which offer low interest rates to deposit at the banks which offer higher interest rates. Meanwhile, in general, the total deposit volume at the banks has not increased.
The monetary market has become so hot in the last two weeks. In the week of November 8-12, the State Bank offered 75 trillion on the open market, while banks registered to borrow 280 trillion dong.
The fact that the State Bank has stopped providing 28-day loans and raised the 7-day interest rate from seven percent to 8.75 percent has made the market even hotter. The interbank overnight interest rate once jumped to 17 percent, while the one-week interest rate once climbed to 20 percent.
The interest rates then went down to 11 percent and 14 percent after the central bank promised to help banks improve their liquidity and resume 14-day loans. However, many banks are still facing the liquidity problem. Not one institution registered to join the latest bid opened by the State Treasury.
Saigon Tiep Thi newspaper has quoted its sources as saying that in the first two weeks of November, the deposit volume of the banks which keep the actual deposit interest rate at 12 percent per annum has reduced by 8-12 percent.
Analysts have warned that the current interest rate war will not bring benefit to anyone. As the money is running around, from one bank to another, the capital mobilization cost has been increasing. The higher capital costs have forced banks to lend at higher interest rates which businesses cannot afford.
“No business can make a profit high enough to offset the sky high lending interest rate of nearly 20 percent,” said Duong Thu Huong, Secretary General of the Vietnam Banking Association.
vietnamnet
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