VIetnam Deposit Rates Cool Down

The act of breaking the deposit rate cap has not ended, but deposits rate at many banks have slightly declined against October.

In October, tellers at a large joint-stock commercial banks in HCMC offered depositors interest rates of over 12% per year for deposits of VND1 billion or above. On Monday, the rates fell to 11-11.5%, applicable to one-month terms, which are still 2-2.5 percentage points higher than the ceiling rate.

Meanwhile, at a smaller bank in the city, the annual interest rate for short-term deposits has been brought down to 12%, versus over 13% last month. However, those depositing more than VND500 million can negotiate for saving rates.

When depositing money in this bank, clients are given the interest sums in advance and have to sign a lot of papers that they do not know what they are. However, they accept to do so to enjoy attractive deposit rates.

As the bank is subject to special control, lending activities have been stopped since the year’s beginning, so mobilization is mainly to guarantee liquidity, said a bank employee.

Meanwhile, the highest interest rate for long-term deposits is now 13% per year, but most banks offer this rate for the 13-month term only provided that depositors will not withdraw their money prior to maturity. As for the terms of above 13 months, the highest saving rate is 12%.

Long-term deposits occupy just a small proportion in the total deposits in banks. Therefore, most banks raise interest rates for long-term deposits to attract the clients.

The race to break the ceiling deposit rate is not over, especially when a number of banks are facing liquidity constraints, yet interest rates have dropped slightly.

The interest rates for short-term deposits are mainly below 11%, including the banks that breach the deposit rate cap. Long-term deposit rates are staying at 12% per year, down 1-2 percentage points compared to October.

Nguyen Hoang Minh, deputy director of the central bank’s branch in HCMC, said a number of banks in the city saw their liquidity improving in November as the deadline for gold mobilization had been extended to June next year. As such, banks do not have to spend more money to buy gold to balance their status immediately, because this amount of gold cannot be converted to other forms so it will be kept as bank capital.

Liquidity of banks from now to the year’s end is not worrying, said Minh, explaining that the central bank has requested commercial banks to balance their money sources to give to businesses buying goods to serve the year-end shopping season.

Trinh Van Tuan, chairman of Oriental Commercial Bank, said that as banks were having difficulties giving out loans, they had to think of outlets for each dong they mobilized, so not any bank could sharply increase their deposit rates.

There are two reasons for banks to break the ceiling deposit rate, said Tuan.

The first is to make up for liquidity shortage. This phenomenon occurs at a number of small banks with weak financial capability that will be restructured soon and the banks affected by cash and gold withdrawals following the case of ACB in late August.

The other reason is that banks must follow the general trend to keep customers. When clients withdraw their deposits, other services will also be affected, so banks are forced to raise interest rates to keep their customers.

Nguyen Phuoc Thanh, general director of Vietcombank, explained that some small banks had to breach the deposit rate cap because lending in the inter-bank market had been tightened under Circular 21/2012/TT-NHNN effective from September 1.

At present, Vietcombank is only lending to banks with collateral, such as U.S. dollar, government bonds and other valuable papers.

The inter-bank lending is tightened because many banks have delayed debt repayments, affect bank lending, while lenders now have to make risk provisions for inter-bank loans, said Thanh.

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