In Vietnam, deposit interest rate has risen to approximately 8 per cent per annum, the highest in 2 years, resulting in a hike in lending rates and worrying companies and long-term borrowers.
Vietnam Export Import Commercial Joint Stock Bank (Eximbank) announced to speed up its promotion programme to attract depositors, applicable from February 24. Regarding dong deposits carrying a maturity term of 15-36 months, high interest rate is based on terms and values. The highest rate of 8 per cent per annum is applied to the deposit valued from VND10 billion upwards with a 36-month term.
This is also the highest dong deposit rate among credit institutions for the time being. Popular deposit interest rate is 7.4 - 7.5 per cent per annum.
While Eximbank’s high rate is applied with strict conditions, other lenders impose easier requirements for high-rate deposits. Orient Commercial Bank (OCB) applies 7.7 per cent on deposits bearing 13- and 21-month terms, 7.8 per cent on 24-month deposits and 8 per cent on 36-month deposits.
Depositors can get 8.1 per cent rate if they place deposits online. Southeast Asia Commercial Joint Stock Bank (SeABank) is also applying an 8 per cent rate for conditional deposits.
The recent development has widened the gap between short-term and long-term deposits, even to 2 per cent. This has pushed depositors to opt for longer terms when they place their money at banks. This may be necessary for commercial banks to prepare to meet with Circular 36, which specifies banks can use 40 per cent of short-term deposits for long-term loans from current 60 per cent.
The circular is just one reason but it is more important that the market rate is really heated up again. In late December 2015, the market witnessed some previously wholly State-owned banks like Vietinbank and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) even quoted higher rates on short-term deposits, e.g. shorter than three months, than joint stock banks like Sacombank, Eximbank and Military Bank (MB). This was a rarely strange occurrence.
Normally, holding the advantage of operating scale and prestige, big lenders, which were previously State-owned, imposed lower deposit rates than commercial banks by 0.5-1.5 per cent, depending on maturity terms. Joint stock banks with smaller scales still have to compete mainly by more competitive interest rates. But, things seem to change now as the degree of rate differentials has been narrowed. Even at the end of 2015, big lenders quoted higher interest rates.
At BIDV, quoted interest rates in Hanoi have erased the gap with many joint stock banks and even surpassed in some short-term maturities. Specifically, BIDV imposed the interest rate of 4.8 per cent on one-month dong deposits while other lenders like MB, ACB and Eximbank only offered at 4.4 - 4.6 per cent per annum.
In mid-February 2016, many commercial banks revised up deposit rates in all terms. Before Tet, the Lunar New Year of Vietnam, a few banks increased interest rates to ensure liquidity but more followed this movement after Tet.
Under current regulations, the State Bank of Vietnam (SBV), or the central bank, only imposed the ceiling interest rate on short-term terms, from one month to six months while lenders decide deposit rates of other terms. What concerns banks is Vietnamese depositors do not stay loyal to any banks and they will choose those with higher rates. This may cause a rate race among commercial banks.
High deposit rate naturally entails a rise in lending rates, showing the growth in production and business activities. But, higher rates cause businesses to worry about their production and business plans in 2016. Long-term borrowers, particularly homebuyers who borrow with floating rates, will be affected substantially. Normally, after 12-18 months enjoying preferential rates, they will be imposed new rates, which are based on 13-month term deposit rate plus 4 per cent.
According to the SBV, as of December 31, 2015, outstanding loans grew up 17.29 per cent from the end of 2014, higher than the average annual growth of 12.6 per cent in the 2011 - 2014 and higher than the target of 13-15 per cent set for the year. In his official dispatch after the Lunar New Year, the Prime Minister asked the central bank to regulate interest rates and exchange rates for the sake of macroeconomic stability, monetary and foreign exchange policies and guide the banking system to ensure credit growth from the start of the year in line with credit growth direction set for 2016.
Bao Chau
Vietnamese
