Small banks find ways to offer higher deposit rates than consensus level

All banks have officially listed deposit rate index of no more than 14 percent per annum after the intervention of the State Bank of Vietnam (SBV). However, the competition to attract depositors by offering high deposit rates is still quietly taking place in small banks. Compared to the early and mid December 2010, dong deposit rates have become fairly stable, commonly at 14 percent per annum. Many experts believe that deposit rates would not be as high as in the early days of December, they might even be adjusted down after the Lunar New Year, when the demand for capital decreases. However, in fact, tension in capital raising is still going on. At the conference reviewing the banking sector held recently, leader of a small bank in HCM City said, customers of this bank have withdrawn 1.3 trillion dong just a few days after deposit rate was pulled down to 14 percent per annum. This shows that some other banks are still offering higher deposit rates than the consensus level. When being asked, most banks said they do not dare to break the consensus level since SBV directed them to stabilise interest rates and conducted supervision. In fact, many banks apply big lucky draw programmes, in addition to the official deposit rate of 14 percent per annum. Explaining on this issue, leaders of those banks said that those promotional programmes took effect before the agreement on consensus deposit rate so they do not violate. According to a bank’s leader, small banks are quietly breaking the consensus level not because they want to grab customers, they just want to keep customers. Although SBV said it would provide refinancing loans, small banks are still hesitating, as being afraid that SBV would evaluate them as banks which might lose liquidity, and later they might face difficulties in applying for establishment of bank branches and services. A leader of SBV said in December, the demand for capital of businesses in HCM City area has shown signs of slowing down, before the pressure of high negotiable lending rate. Thus, banks that maintain high deposit rates might be difficult to stimulate credit growth. Nevertheless, since the new consensus deposit rate was applied, dong negotiable lending rates have gone down relatively slowly, although some banks affirmed that lending rates would go down if banks apply ceiling deposit rate of 14 percent per annum. Negotiable lending rates are currently ranging from 17 percent to 18.5 percent per annum for corporate customers, even higher at small and medium banks. For individual customers, lending rates are maintained at high levels of 19 to 20 percent per annum at small banks and 18 to 19 percent at large banks. Some banks have raised lending rates to 22-23 percent per annum for unsecured loans, especially rates for credit card. Specifically, Techcombank has increased interest rate of Techcombank Visa international credit card to 23 percent per annum, instead of 19 to 21 percent per annum as before, and of Vietnam Airlines Techcombank Visa credit card to 23 percent per annum from December 29. When raising lending rates, banks are actually facing challenges of not completing the credit growth target set early of the year. For example, leader of ACB said the bank might achieve the target for outstanding credit for corporate customers, but it is difficult to complete the target for individual customers’ outstanding credit, since customers are hesitating to borrow at high interest rates. This is a great profit pressure for small banks. According to Dr Le Xuan Nghia, deputy Chair of the National Financial Supervisory Committee, at the current high mobilisation costs, banks might have difficulties in immediately reducing lending rates, especially when they currently have to pay high interest rates of eight to 10 percent per annum for the cash deposits of corporate customers, instead of paying non-term interest rate as before. Therefore, deposit rates might fall rapidly after the Lunar New Year, but lending rates would remain high, it takes them at least one to two months to decrease accordingly. – SGGP

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial

Posted by VBN on Dec 30 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