Deposit Fever Heats up

The monetary market, since the start of this year, has signaled a fever as commercial banks continuously boosted their deposit interest rates and launched a series of promotion programs in a bid to attract deposits.

 

According to the State Bank of Vietnam-Ho Chi Minh City arm, local capital growth in January and February was very high whereby deposits from residents posted an increase of 5.5 per cent compared to December 2005.

 

Meanwhile, January-February credit recorded a slow growth compared to previous months, inching up by only 0.93-1.12 per cent compared to December 2005. Notably, forex credit, according to the Bank for Foreign Trade of Vietnam (Vietcombank), has nearly stood still.

 

The highest VND deposit interest rate has now climbed up to 0.82 per cent a month at commercial joint stock banks and 0.77 per cent a month at state owned commercial banks.

 

The Asia Commercial Joint Stock Bank (ACB) has made an upward adjustment of 0.3-0.85 per cent a year for US dollar deposit interest rates since March 3. In addition, depositors are entitled to an extra bonus interest rate of 0.1 per cent-0.162 per cent a year applicable for US$5,000-6,000 savings books.

 

The Bank for Foreign Trade of Vietnam also decided to raise VND deposit interest rates by another 0.2-0.6 per cent a year since the end of February.

 

The aforementioned deposit interest rates have attracted a great deal of deposits, particularly at commercial joint stock banks. According to Le Dac Son, the general director of the Bank for Private Enterprises (VPBank), deposits from residents booked an all-time high, totaling more than VND500 within only the first two months of this year, pushing VPBank’s deposit balance to VND3.7 trillion.

 

Assessing the current race to boost deposit interest rates amongst banks, director of the Ministry of Finance’s Banking and Finance Department Pham Phan Dung said that the interest rates of domestic banks are greatly impacted by international interest rates. When the US Federal Reserve (FED) hikes it key rate, domestic commercial banks find it hard to maintain their rates.

 

Auctioned coupons of government bonds in the inter-bank market remained stable. This showed that the disposable capital of commercial banks is sufficient to meet the capital demand of the market.

 

In this current state, commercial banks have put themselves into difficulties. Presently, the common deposit interest rate of commercial banks is 8.5 per cent a year while the lending interest rate is more than 9 per cent a year.

 

Financial experts warned commercial banks to be careful about raising deposit interest rates because massive interest rate increases by commercial banks have significantly reduced the capital loan demands of entrepreneurs.