Small banks: regulation violations or bankruptcy?

Vietnam’s small banks deliberately breached the state regulations on deposit ceilings despite severe penalties to deal with serious liquidity problems.

Small banks found themselves in shortage of funds as savings flowed to big banks after the central bank took measures to strictly reinforce the interest rate cap. Moreover, local depositors were reported to withdraw their money from banks seeking for other higher yield investments such as gold. Total deposits outflows at these banks were estimated up to tens of trillions of dongs.

Banks are suggested to borrow in the interbank market to overcome their deposits thirst. However, many banks decided to illegally increase deposits interest rates to attract cheaper source of funds as the mobilizing rates are much lower than the interbank interest rates.

While the interest rates for non-term and under 1 month terms deposits were strictly capped at 6% p.a., the 1-week interbank rate was as high as 14-15% per annum.

It is time the State Bank of Vietnam capped the interest rates in the interbank market to consolidate the banking system, the local newspaper Thanh Nien said.

Source Sophie/ News Writer/ StoxPlus

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial

Posted by VBN on Oct 12 2011. 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