New decision prompts banks to increase short-term deposits

The monetary market has seen a prompt reaction since the State Bank of Vietnam decided that commercial banks can only use 30 percent of short-term mobilised capital for medium- and long-term loans. Banks are now rushing to provide short-term deposits to meet the requirement.

Under the previously applied regulation, banks could use up to 40 percent of short-term mobilised capital for long-term loans. However, in an effort to control credit quality and help commercial banks reduce risks, the State Bank of Vietnam has decided that the ratio must be lowered to 30 percent.

Short-term deposits are defined as less-than-12-month term deposits, while medium- and long-term loans are defined as more-than-12-month term loans.

Though commercial banks well understand that it is risky to provide medium- and long-term loans with short-term mobilised capital, they still have to do this since 90 percent of mobilised capital comes from short-term deposits. Vietnamese people, in general, do not like making long-term deposits as they worry about inflation rates and exchange rates. Moreover, short-term deposits allow them to get back capital to make investments in other channels any time they want.

The new decision has worried banks which have been employing 40 percent of their mobilised short term capital for longer-term loans. One of the measures they are taking is to try and mobilise more short-term capital in order to reduce the percentage. The percentage must be lowered to 30 percent by early October 2009, when the new decision takes effect.

Saigon Bank has raised the interest rates of short-term (from one week to three month term) deposits by 0.1-0.7 percent. The bank is now offering the interest rate of 7.7 percent per annum for three-week deposits, and 8.2 percent per annum for one-month deposits.

Nam A Bank has also raised deposit interest rates by 1.2 percent per annum at the highest. Now the bank’s 6-month term deposits have the high interest rate of 8.85 percent per annum.

Maritime Bank has also announced attractive interest rates. Its three-month term deposits now enjoy the interest rate of 8.7 percent per annum, while six-month term the interest rate of 9 percent per annum.

Dong A Bank has issued 11-month term promissory notes with the face value of 10 million dong and interest rate of 8.8 percent per annum, and mobilised 300 billion dong within one month (from July 10 to August 10).

Bigger banks have not made any moves to adjust their interest rate policies.

Nevertheless, finance experts believe that bigger banks, sooner or later, will raise deposit interest rates or their clients will leave them for smaller banks offering higher interest rates. Therefore, experts believe that the market will see a new interest rate ground take shape in the time to come.

VietNamNet/NLD

Tags: Vietnam deposits, Vietnam finance, Vietnam financial, Vietnam interest rate