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Banks breach rate cap to attract deposits
Small and large banks nationwide are competing with one another to attract much-needed deposits and improve their liquidity.
Although the interest rate on dong deposits was capped at 9 per cent per year by the State Bank of Viet Nam, several commercial banks have still been illegally raising interest rates on loans in both Vietnamese dong and US dollars to improve liquidity.
Small banks are offering much higher interest rates than larger ones, with rates going up to 11-13 per cent per year for deposits in dong based on their terms.
To dodge the SBV's 9 per cent cap, promotion programmes, gifts and cash are being offered by banks to encourage people to deposit their savings.
For example, some banks give depositors savings books with an interest rate of 9 per cent per year, as regulated.
But when the customer makes the deposit, the bank subtracts the difference between the regulated interest rate and the offered bank rate, and gives the customer upfront an amount of cash equivalent to the difference, depending on the length of the deposit term.
By doing this, it is less likely that banks' illegal actions will be discovered when inspected.
Previously, banks had competed with each other to increase the interest rates of dong deposits only, but now lenders have raised the rate on deposits in US dollars from the regulated 2 per cent per year to 4-5 per cent.
Tran Thanh Tam of Tan Binh District said he had deposited only US$20,000 at a commercial bank's branch in the district and was offered a 3 per cent interest rate.
"I could have received a higher rate if my deposit had been higher," Tam said.
Promotions with attractive gifts and bonuses are also being used by many commercial banks to attract depositors.
In mid-October, the HCM City Housing Development Bank (HDBank) launched the promotion "Bounteous Privileges – Abundant love" with more than 48,000 gifts for customers.
This promotion is for individual customers who deposit VND5 million or $500 with a minimum term of four months. They also receive scratch cards and have the opportunity to receive valuable gifts.
Meanwhile, depositors at the Southern Commercial Joint-Stock Bank also receive cards and prize codes that gives them a chance to win one kilo of gold.
People who deposit VND20 million or more at the Military Commercial Joint-Stock Company are able to win a special prize valued at 18 kilos of gold.
As a result, by the end of September, the banking sector's deposit capital grew by 11 per cent compared with last year's figure, while credit growth was only 1.8 per cent, according to the General Statistics Office.
According to the central bank's report, bad-debt ratios at banks, accounting for 8.6 per cent of the country's total loans, are the main reason behind the interest-rate race.
The actual bad-debt ratios at banks is much higher, and could increase because the business health of enterprises has been getting worse, according to experts.
In addition, many small banks have not had assets to use as collateral to borrow capital on the inter-bank market, and have not had valuable papers to borrow capital in open-market operations (OMO).
This situation has forced banks to mobilise capital to ensure liquidity.
Also, enterprises have higher capital demand near the end of the year, which has pushed banks to mobilise more capital.
Experts said that the current bank violations of regulations were not new, and were difficult to control.
The central bank recently announced a draft decree that would impose new penalties for violations in monetary and banking activities. It is expected to effectively prevent bank violations.— VNS
Under the draft, banks that show signs of mobilising capital at interest rates higher than the regulated ones will be fined between VND500 million and VND1 billion.
Dr. Le Tham Duong of HCM City Banking University said the penalty was sufficient, but that other strict punishment measures should be used as well to ensure compliance.
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