Vietnamese dong deposit rates calm down after week of turbulence

Vietnamese banks have cut deposit rates to around 14 percent from a high of 18 percent last week, after what bankers said on Monday was a race to raise funds that may not have derived from lenders' real need for liquidity.

Many banks pushed rates up last Thursday, causing market turbulence after partly private Techcombank offered depositors a rate of 17 percent in a three-day window from December 8 to 10.

However, the State Bank of Vietnam stepped in to ask the Hanoi-based lender, which is 20 percent owned by HSBC Holdings Plc, to stop the program.

By Monday, most commercial banks had lowered deposit rates to around 14 percent. State-run lenders were applying this rate to shorter terms while keeping most rates at around 12 percent.

"This deposit rate is suitable at this time, when inflation is high and the base rate has risen," Ho Huu Hanh, Director of the central bank office in Ho Chi Minh City, told Reuters Friday.

Hanh said last week's competitive rate rises were only partly related to difficulties raising deposits; the underlying reason was fear of losing depositors to others with high rates.

"They had no option but to raise rates, otherwise depositors would have withdrawn their savings," he said.

An official at a Hanoi-based bank who declined to be named said liquidity was fine because banks had planned for a year-end crunch.

Overnight dong interbank rates soared to 13.25 percent last Friday, the highest for at least 22 days, from around 10 percent five days earlier, Reuters data showed.

Bankers said the fear of losing deposits coupled with the smaller volume of cash injected by the central bank in open market operations had worried lenders.

Hanh confirmed that cash volume had shrunk recently, which may have put some banks under pressure.

"We plan to suggest that the central bank reconsider the volume and term of its cash injections. Seven days may be too short for banks," he said.

The central bank has offered just seven-day loans via open market operations in recent weeks, bankers said.

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