Interest rate spread among commercial banks at around 3.5pct

Many enterprises said that the spread between deposit and loan rates at banks was too large, showing that banks are earning profit on enterprises.

But banks rejected it as according to them up to 90 percent of their operation cost was used to pay deposit interests and remainder was spent on space rental, salaries and others.

Apparently, the ceiling deposit rate now is 14 percent per annum while the average lending rate stands at 20 percent pa, which is seemed to be a high gap but actually, it is not like this, Dr Pham Xuan Hoe, director of Vietinbank-Nam Thang Long Branch explained.

Presently, some small banks with weak liquidity have to pay high costs for liquidity and decide to raise deposit rates to 18-20 percent a year. So banks are forced to use many tools to keep capital and customers. In fact, the gap is around 3-3.5 percent only, he noted.

The SBV Governor Nguyen Van Giau also confirmed, the income of commercial banks mainly comes from interests and their liquidity always stay at “enough sufficient” level with safety standards. Meanwhile, the information on credit institutions has not been transparent, so people still select the banks offering high deposit rates without paying attention to credit risks.

The cause of high inflation in Vietnam was for the dependence of growth on credit, Associate Prof Dr Dao Van Hung-Vice Head of Ministry of Planning and Investment’s Policy and Development Institute said, adding that Vietnam’s outstanding loans on GDP ratio was 126 percent last year against 56-60 percent of regional countries.

Hence, inflation remains the biggest challenge for Vietnam in several coming years, requiring the more cautious monetary policies.

Anyway, Dao Van Hung expected that enterprises would be able to access capital sources more easily in the last half of 2011. The government targets to reach growth of balance of payment at 16 percent, credit growth at 20 percent for this year but actually two figures rose 2.33 percent and 7.05 percent by June 10.

Till June 20, the deposit rate band still continued standing at high level. Many commercial joint stock banks even pushed the demand deposit rates to 13 percent pa. – Vietbiz24

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates