Bankers balk at interest rate reductions

The Government has instructed the State Bank of Vietnam (SBV) to take actions to force deposit interest rates down to 10 percent and lending interest rates down to 12 percent to help businesses obtain the 6.5 percent economic growth rate for 2010. Bankers respond that it is too difficult to ease interest rates now.

Deposit interest rates have not decreased as the Government wants, but instead have made recent increases. In an effort to attract more capital, banks have raised deposit interest rates, some exceeding the ceiling deposit interest rate of 11.5 percent agreed upon by banks

Last week SCB, for example, raised the deposit interest rate for 6-13 month deposits to 11.6 percent per annum, while rates for one week-five month deposits have been raised to 10.8-11.55 percent. Asia Commercial Bank (ACB) raised its rates by 0.1-0.2 percent, boasting the highest interest rate of 11.6 percent.

Similarly, Eximbank is now offering interest rates of 11.55 percent and 11.58 percent, respectively, for 3-6 month term deposits. The rate rises to 11.7-11.8 percent if depositors deposit sums of 10 billion dong or more.

With great effort, interest rates were lowered from nearly 12 percent to 11.5 percent per annum. However, interest rates have risen again to nearly 12 percent. It is clear that increases of deposit interest rates will make it impossible to lower deposit and lending interest rates.

Not only small banks have raised interest rates to improve their liquidity, but large banks have done likewise, demonstrating that banks are having difficulties in mobilizing capital.

A joint-stock bank director remarked that dong and dollar interest rates in the interbank market last week also increased significantly. The overnight interbank dong interest rate increased by 0.32 percent to 7.14 percent per annum.

It is clear that interest rate decreases could not be decided by administrative measures. With interest rates escalating, it will be very difficult to force interest rates down. Commercial banks have triggered a new interest rate race.

Explaining why commercial banks must raise rates, the director of a small joint-stock bank in Hanoi explained that it is very difficult to mobilize capital from the public right now. People need capital to do business. Besides, banks must not only compete with each other in mobilizing capital, but they must also compete with other investment channels, such as real estate and the stock market. People nowadays can find many other attractive investment channels.

He predicted that interest rates would keep rising, and lowering interest rates is just “the story of the State Bank of Vietnam.”

A commercial bank director commented frankly said that it is impossible to lower deposit interest rates. With the targeted inflation rate at eight percent instead of seven as previously planned, he concluded, interest rates would continue to rise and would possibly exceed the 12 percent threshold.

Vietnamnet

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