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Banks rushing to raise dollar deposit interest rates
After the Vietnam dong deposit interest rates have been stabilized at around 14 percent per annum as per banks’ commitments to the Vietnam Banking Association, banks are now rushing to raise the dollar deposit interest rates.
On January 8, 2011, Western Bank announced the increases in its dollar interest rates applied to short term deposits. The interest rate for one month term deposit, for example, has been raised to five percent, while the rate for two month term deposit to 5.1 percent, and the rate for 3 month term deposit to 5.3 percent.
Meanwhile, SeABank has also raised its highest interest rate to six percent per annum. Other banks are offering the interest rates of between 5.1 percent and 5.6 percent per annum.
Only some big banks which have advantages in payment and import-export support, such as Eximbank, ACB or Sacombank, keep the deposit interest rates at below five percent.
Explaining the decision to increase interest rates, banks said that they want to expand their credit market share. Especially, in the days just before Tet, the volume of kieu hoi (Overseas remittance) to Vietnam has been increasing, and banks have decided to raise the interest rates in order to attract the profuse capital.
Do Lam Dien, Deputy General Director of Maritime Bank, said that banks have been intensifying the dollar mobilization partially because they prepare for the new year business plans. Besides, the demand for dollars is increasing among the banks, which sold the dollar deposits to get Vietnam dong to lend to clients in 2010 at the interest rates applied to dollar loans. These banks need \ dollars now in order to pay to clients for the due debts.
Dien also said that businesses’ demand for foreign currency loans is increasing, prompting banks to adjust the dollar interest rates. Banks want to mobilize more capital in order to satisfy the demand .
Le Dang Khoa, Deputy General Director of Western Bank, said that over the last three years, clients switch to borrowing in dollars instead of Vietnam dong due to the big difference between the interest rates. Therefore, banks have to raise the dollar interest rates in order to narrow the gap. Besides, Khoa said, the bank’s international payment service has been developing well, therefore, Western Bank believes that it needs to increase the dollar capital mobilization.
Also according to Khoa, in short term, businesses tend to borrow in dollars because the gap between the Vietnam dong and dollar interest rates has reached 12 percent, and in short term, the Vietnam dong will not be able to depreciate by 12 percent against the US dollar. Therefore, a lot of businesses, especially export companies, choose to borrow in dollars.
At present, banks are offering loans at the interest rates of 7-8 percent, while the dong lending interest rates remain at 17-18 percent.
In principle, lending to import companies is considered a risky business, because importers sell products domestically for Vietnam dong and they do not have dollars to pay debts. However, many banks are still considering providing loans in dollars to import companies.
Dien said that banks will consider their dollar supply to decide whether to lend dollars to import companies. For example, the banks that have many exporters as clients, would have profuse dollar supply for lending,.
Commenting on the move by commercial banks to raise dollar deposit interest rates, analysts have warned that it will impact the Vietnam dong interest rates, because higher dollar interest rates will prompt people to hold dollars instead of Vietnam dong. If so, the volume of Vietnam dong deposited at banks may decrease, which will force banks to raise dong deposit interest rates in order to attract more capital.
Though the State Bank of Vietnam asked commercial banks to restrict the loans used for import of unnecessary goods, by the end of 2010, the credit growth rate of the whole banking system still reached 27.6 percent, of which the dong loans had increased by 25.3 percent, and foreign currency loans increased by 37.7 percent.
vietnamnet
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