Interest rates may harden again in Vietnam market

Although the inflationary expectation is at a low level in 2010, those who hold idle cash expect higher saving interest rates, while US dollar/dong exchange rate has recently been raised and gold is making new record price hike in history.

Recently, the greenback deposit rates increased quickly, driven by the US dollar outstanding loan rising too fast compared to mobilised dollar resources.

According to deputy general director of Asia Commercial Bank (ACB), Do Minh Toan, the demand for US dollar loans of exporters continues rising, because the loan interest rate of dollar is lower than that of dong.

In less than one month Vietnam Export-Import Commercial JS Bank (Eximbank) has raised interest rates for US dollar savings three times. Eximbank is now applying the highest interest rate of nearly 5 percent per year. Prior to this pressure, the possibility of dong interest rate increases will re-sign and dong interest rates have actually inched up.

In a bid to encourage customers to deposit money, in the middle of September 2010, commercial banks continued to push for promotion. Specifically, September 14, Viet A JS Commercial Bank launched a prize-based promotion campaign called “Win gold every day, win SH motorbike every week”, with a total prize value of more than 11 kilogram of SJC gold (equivalent to more than 8.5 billion dong.) Individuals who need only minimal savings from the two million or $100 or only 0.2 SJC tael will be entitled to a prize lottery, while each organisation sends at least 3 million dong or $200 each to VietA Bank to receive a lucky lottery.

For dong inter-bank transactions, in the over past week, the market also witnessed a simultaneous increase in interest rates at all terms. In particular, the interest rate for six months increased from 11.66 percent to 13.3 percent per year, equivalent to 1.64 percent. The rates of remaining terms ranged from 0.2 percent to 0.58 percent per year. Average overnight interest rate increased 0.39 percent per year compared with last week.

According to financial experts, the interest rate often depends on inflation expectations. Inflation expectations of the government this year is about 7.5 – 8 percent, but the expectation is always higher in people. In fact, this year inflation could be controlled at 8 percent, but actual interest rates (plus the bonuses and promotions) are back up to 12-13 percent per year.

The reasons why interest rates of dong, US dollar and gold have been pushed up are attributed to the pressures by the new regulations prescribed in Circular 13.

According to the new circular, banks will be only allowed to use a maximum of 80 percent of mobilised capital to provide credits. Especially, in those days, the market continues to expect the information from the SBV and government to adjust this circular. Banks hope that they will be allowed to calculate the amount of demand deposits sent by economic organisations and business as mobilised capital, rather than removed as defined by SBV.

Meanwhile, the policy to cut down the input interest rate to 10 percent and “output” rate to 12 percent per year that the government has set out for long, so far has not been done much.

Notably, the recent pressure on interest rates is getting stronger again and this is a very worrying problem. Thus, according to Dr Le Xuan Nghia, vice chair of National Finance Supervisory Committee, in efforts to carry out the policy to reduce interest rates effectively and stimulate credit growth, the priority is to increase the money supply to the economy.

In addition, according to financial experts, the central bank should also remove or adjust the provisions governing that banks are not allowed to use mobilised capital in the interbank market to lend out more than 20 percent for their mobilised capital to boost credit growth in the last months of this year. – Dautu chung khoan

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