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Small banks desperate to mobilize capitals
Although the central bank capped the credit growth rate this year to battle high inflation, small banks with low liquidity still shunned the cap as they find themselves desperate to mobilize capital due to large-cap lenders’ high interbank rates and the state bank’s hike in the reverse repo rate.
Many commercial banks have ignored the central bank’s tight monetary policy to offer saving rates, which are higher than the 14-percent-per-annum cap on dong deposit.
The electronic board at all lenders shows interest rates, which match with the state bank’s regulated rates.
However, depositors are being offered a “negotiated rate” of 16.5-18 percent per annum and some small-cap banks even offer 20 percent per annum to those who deposit an mount of VND1 billion (US$50,000) or more.
The State Bank of Vietnam boosted the refinancing rate to 14 percent from 13 percent early this month, adding to increases in February, March and April 1, and raised the discount rate to 13 percent from 12 percent.
The state bank also raised the rate it offers for loans via open market operations by 100 basis points to 14 percent this month, according to an announcement seen by Reuters.
The hike in the reverse repurchase rate followed increases in two other policy rates, the refinance rate and the discount rate, announced after annual inflation in April reached a 28-month high of 17.51 percent.
The central bank's last increase in the reverse repo rate, a 100 basis point move on April 1, accompanied an increase of the same magnitude in the refinance rate.
Financial experts said the increasing reverse repo rate forced lenders with low liquidity to ignore the central bank’s cap to mobilize capital at any cost as they could not afford to the interbank rates of 20-22 percent per annum of commercial banks with large capitalization.
Local businesses are now suffering high lending rates as the consequence of the high saving rates, while the input costs are also on a rise, analysts warned.
The central bank announced earlier it carried out sudden inspections at branches of lenders nationwide, but found no violation. Experts noticed that commercial banks managed to cover the negotiated rates by extra fees.
They also said that lenders with large capitalization found the central bank’s tight monetary policy a profit-taking opportunity as small banks with low liquidity had to seek capitals from them.
“Therefore, the whole banking system is carrying high risks,” a financial expert in HCMC told Dau Tu Tai Chinh Newspaper.
“Commercial banks’ credit have grown slowly since early this year. But small banks with low liquidity still had to rush to mobilize capitals as they pumped too much into non-productive sectors, in which the central bank capped credit to.”
Ly Xuan Hai, General Director of Asia Commercial Bank, said the competition in core banking services between lenders were getting fiercer. Economist Le Hoang Viet Lam of the HCMC University of Economics and Law suggested to use the quantitative analysis to rate commercial banks.
Vietnam’s government has cut the target for credit growth and ordered a tighter monetary policy as it strives to restrain price gains and stabilize the nation’s currency. Officials in April capped rates payable on dollar deposits, helping spur the dong to its best week since at least 1997 on optimism demand for the higher-yielding currency will increase.
Diu Ngan – Vu Minh
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