Interest rate cuts, banks see drop in capital raising

Two weeks after commercial banks en masse reduced deposit rates in dong, some acknowledged that their capital-raising had been affected as deposits sent to their network were showing signs of fall.

Dam The Thai, head of personal customers department of An Binh Bank, said the trend to attract the capital is not really clear, but currently dong deposits raised at the bank stand back.

After the mid-sized Viet A Bank in early August reduced interest rates down to the highest level of 10.8 percent per year, it immediately faced challenges in raising deposits. Therefore, on July 15, the bank had to increase its deposit rates to 11.2 percent per annum for a term of 3 to 36 months equal to the interest rate of other banks.

Meanwhile, a leader of Eximbank proposed that the State Bank should closely monitor the implementation of commitments by banks to reduce their interest rates to create an environment for fair competition.

Currently, the use of other forms of promotions to increase actual deposit rates has been banned by the State Bank. But the inspections of banks will not be easy when contracts with high interest rates are often not made public.

With the dong deposit rates’ fall, it is said that people will tend to shift from dong deposits to the US dollar because US dollar interest rates tend to rise. While the dong interest rates have been reduced to the highest of only 11.2 percent per year, banks are adjusting up interest rates in US dollar.

The highest savings interest rates in US dollars for banks now are 5.3 percent per year for a 12 month term. At An Binh Bank, the US dollar interest rate has also been pushed to 5.6 percent per year for a five-year term. An Binh Bank’s Thai said that US dollar mobilised capital at this bank has increased considerably in recent times because its dollar deposit rates are the highest on the market.

A joint stock bank CEO said that the State Bank is taking administrative measures to force banks to reduce deposit rates down to 11.2 percent per annum in the short term to create a positive effect to reduce the lending rates for enterprises.

However, in the long run, if the administrative measures continue to be maintained, the interest rate will not correctly reflect market supply and demand, and prices of currencies.

Tags: vietnam bank, Vietnam finance, Vietnam financial, Vietnam interest rates

Posted by VBN on Jul 20 2010. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry