Deposit rate development on the Vietnamese market is quite complex. Small banks announced limit-exceeding interest rates for deposits with a short-term maturity 3 - 6 months while some big names have pushed up the rates to 13 per cent per annum for more than one-year term.
Paradoxically, interest rates escalate while banks are reportedly keeping plentiful money and lending is slow.
Limit-exceeding deposit rates
Asia Commercial Bank (ACB) recently raised interest rates to the highest level of 13 per cent per annum on 13-month deposits in Vietnamese dong and 12.5 per cent on 12-month deposits. Eximbank also increased mobilisation interest rates for 13-month period to 12.8 per cent per annum and for 12-month term to 12.3 per cent.
Other commercial lenders like VP Bank, Sacombank and SHB are quoting the rates at 11 - 12.5 per cent per annum for deposits of over 13 months.
In addition to increasing interest rates, many banks also include promotions like presenting gifts, lucky scratch cards and lucky draw to depositors. Western Bank has announced the new rate at 12.5 per cent per annum for long-term deposits. Many banks pay bonus in cash for customers depositing with 1 - 3 month terms at regulatory 9 per cent. In combination, real interest rates for one-month deposits stay at 12.5-13 per cent, not 9 per cent.
It is quite clear that this conduct is legal. The State Bank of Vietnam (SBV) cannot handle if it knows. An official at BIDV Bank said companies start placing money at banks, not only citizens.
Many businesses prefer depositing money at banks rather than spend on other purposes given pessimistic outlooks. According to banks’ data, mobilised capital increased more sharply than lent capital. As of August 18, deposits at banks unexpectedly rose to 3.04 per cent from the previous month.
Struggling with provisions
Although deposits expanded strongly and commercial banks increased deposit rates to attract capital flows, according to the central bank, the credit growth of the entire system was just 1.82 per cent as of September 7. According to experts, the capital absorption of the economy remains weak and credit growth target of 8-10 per cent this year is said to be impossible because of slow lending.
For example, Eximbank’s credit growth was minus in the first eight months of the year while VietinBank reported a just 2 per cent growth from the ending of 2011. Many commercial banks admitted excess money at this time and difficulty in finding good credit records for lending. So, why commercial banks enter a race for deposit rates while lending is slow?
A banker said the increase of long-term deposits aimed to balance inputs and outputs. Long-term deposits will be used for short-term purposes because citizens do not prefer longer terms due to their fears of inflation. But, although rates are higher, money flows to banks are slow.
Commercial banks accept to increase deposit rates and use the funds to buy government bonds. In fact, the latest government bond issue sold 90 per cent of the offer. “Commercial banks accept a slight loss to make sure of money hoard. They buy low-interest government bonds because they can use them as security for borrowing on the open market. If they do not raise interests for money to buy bonds, they can lose customers to the State Bank,” he said.
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