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Interest war pauses but small banks suffer
The race to hike interest rates has died down as a majority of banks have cut their rates for the dong deposits to a maximum of 14 per cent per year following a central bank intervention.
At last Tuesday's meeting with the banks, Central Bank Governor Nguyen Van Giau asked them to stick to their earlier commitment with the Viet Nam Banks Association to maintain a ceiling of 14 per cent on dong deposits. The central bank later issued a statement on its website asking banks to strictly adhere to the limit.
Banks, big and small, such as ACB, Sacombank, Lien Viet, and Western, last week announced an across-the-board downward adjustment of interest rates.
Banks have different ways of offering interest rates to their customers. At some banks, short-term deposits, including those lasting just one week, fetch the same rate of 14 per cent, while others apply it for deposits of all terms more than 13 months.
There has been broad agreement with the central bank's decision on deposit caps, but there have also been some contrary opinions.
Representatives of most banks said they wanted interest rates to be stable as any impact of volatile rates on their corporate customers would harm them.
Ho Huu Hanh, Director of the central bank's branch in HCM City, agreed with the interest rate cap, noting that despite taking part in the interest rate race early this month, banks in the city were not able to attract as much idle money from the public as expected.
The interest rate race only encouraged capital to move from this bank to that bank, creating chaos in the market and also bringing in risks for banks, enterprises and even depositors, Hanh said.
That some banks that have not agreed with the decision can be seen in their search for loopholes in the law to keep offering higher interest rates. Bonus and lottery prizes are common measures being used by these banks to attract deposits.
Explaining this situation, experts say that a major problem in the banking sector is that small banks do not have enough liquidity, and need to find ways to improve access to capital.
According to Vo Tri Thanh, Deputy Director of the Central Economics Management Research Institute, when the Government applies tight monetary policies, small banks lose their liquidity, so they have to borrow from the inter-bank market at high interest rates.
However, the loans that they can get there are limited to 20 per cent of their mobilised capital. This means that their liquidity cannot be improved to the expected level.
To increase their liquidity, these small banks seek to increase deposit rates, setting off an interest rate race.
With the central bank's current deposit interest cap, banks will have to offer similar rates; and individuals and enterprises prefer depositing their idle money with bigger banks.
To limit credit as a measure to control inflation, the central bank should increase compulsory reserve ratios rather than control interest rates, feels Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Committee.
The higher compulsory reserve ratios would force commercial banks to send more money to the central bank and the latter will have more capital to support smaller banks, and the latter would not have to increase deposit rates, Nghia said.
Capital requirements delayed
On December 14, the Prime Minister set a new deadline of December 31, 2011 for banks to comply with the requirement that they maintain a minimum charter capital of VND3 trillion (US$141.71 million).
Independent market analysts say the move has had some positive impact on the securities market.
The day after the extension was granted, HCM City's VN-Index increased by 3.82 point to 493, while that of the HNX-Index went up by 0.99 point to 120.6.
The stock market's liquidity has also improved significantly with 96 million shares and fund certificates worth VND2.2 trillion traded at the HCM City bourse. In Ha Noi, nearly 79 million shares valued at nearly VND6 trillion were traded. Banks benefited most from the extension, with many stocks reaching ceiling prices.
The Government's Decree 141 issued in November 2006 requires commercial banks to increase their charter capital to at least VND3 trillion by the end of 2010.
The requirement had created pressure on stock market investors since they were afraid that to raise the needed capital, commercial banks would have to issue more shares, creating an oversupply.
Experts felt this as one of the reasons that made the stock market sluggish for a relatively long time.
Nguyen Duc Thi of the Bao Viet Securities Company highly appreciated the Government's extension, saying that the decision was the correct one since many banks were yet to come up with specific plans to increase their charter capital.
The extension would prevent banks from undertaking negative measures to meet the requirement, causing chaos in the monetary market, Thi said.
Thien Ly
vietnamnews
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