Interest rate cap leaves banks in the lurch

As the central bank has slapped a ceiling of 14 percent per year on deposit interest rates, investors are turning their back on bank savings, putting banks under liquidity pressure.
In September, most banks cut their deposit interest rates to 14 percent as ordered by the central bank who threatened strict punishment against violators.

With a lower interest rate, bank savings are becoming less attractive to investors, Saigon Tiep Thi newspaper reported.

Many investors also withdrew their savings to buy gold in mid-September, when the domestic gold price fell.

Banks’ mobilized capital has also been affected as investors have been drawing their savings to buy dollars.

Truong Van Phuoc, CEO of Eximbank, said capital mobilization at his bank this month fell by 2 percent month on month while lending also saw a similar drop.

Phuoc said deposits between July and September fell by as many as 4 trillion dong (US$195 million).

Other banks also admitted to having similar saving outflows, though they declined to give exact figures.

The decreased mobilized capital has put liquidity pressure on banks and other credit institutions and heated the interbank interest rate market.

In the first week of this month, the overnight average interbank rate rose to 15 percent while the interest rate for one-week term increased to 15.5 percent and 17.5 percent for one-month term, much higher than the 14 percent rate applied for deposits mobilized from the public.

Exchange rate pressure

Exchange rate pressure has also emerged recently as the central bank has increased the interbank dollar exchange rate for six times this month.

The current rate has been set at 20,688 dong a dollar, up by 60 dong a dollar compared with early this month.

Banks have all adjusted their selling price of the greenback to the ceiling rate of 20,895 dong a dollar.

Interbank transaction in dollars also saw a strong increase in turnover.

In the last week of September, interbank dollar trading turnover rose to US$3.01 billion, or $602 million a day, from the $2.64 billion a week earlier.

Experts said such development of the exchange rate was predictable since dollar demand always rose in the last quarter.

But they said the pressure had come earlier than expected since a large amount of foreign currencies had been spent on gold imports.

Besides five tons of imported gold in August, banks also had to use dollars to buy gold from the gold account trading floor on the international market to make up for an estimated 10 tons of gold they have sold to stabilize the market since October 6.

Under such pressure, the dual forex rate phenomenon has reportedly returned to some banks.

The director of a machinery importer said a bank had offered to sell dollars to him at 21,450 dong a dollar, while the listed selling price was only 20,885 dong a dollar.

Tuoi Tre

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates