With capital more abundant, banks ease interest rates

Just days after raising the dong deposit interest rates to a record high of 11.99 percent, banks are now rushing to scale them back.

LookAtVietnam - Just days after raising the dong deposit interest rates to a record high of 11.99 percent, banks are now rushing to scale them back.

The Saigon-Hanoi Bank’s interest rates have been ‘updated’ with the highest interest rate now at 11.5 percent per annum instead of 11.99 percent, the all time high that existed for five days.

The new interest rate of 11.5 percent per annum is applied to different kinds of deposits with the terms ranging from 3 to 36 months. The bank is paying 11.4 percent and 11.45 percent per annum for one month and two month term deposits, respectively.

Explaining the decision to slash deposit interest rates, the bank said that the adjustment has been made in response to a request to ease interest rates by the Vietnam Banking Association. VNBA believes that a deposit interest rate of 11.5 percent is reasonable and itt has called on commercial banks to apply the rates around 11.5 percent. VNBA also asked that banks not offer gifts or bonusinterest rates, which may distort the monetary market.

Saigon-Hanoi Bank is the first bank which has lowered interest rates to respond to the call by VNAT. Some 10 other commercial banks are still paying more than 11.5 percent per annum for deposits, of which two or three banks offer theinterest rates of up to 11.99 percent. Some banks are still offering gifts or bonus interest rates, despite repeated requests by the banking association.

VnExpress quoted a director of a bank which is offering the high interest rate of 11.99 percent as saying that the bank will soon lower the rates. The director said that the bank has to offer high interest rates to lure depositors. “However, as the market is stabilizing step by step, the deposit interest rates will gradually be decreasing,” he said.

“We are considering adjusting the interest rates when our capital has become more profuse,” he added.

Banks’ liquidity has improved, according to the State bank of Vietnam. In the week of April 9-15, the Vietnam dong average interest rate in the interbank market decreased for all kinds of loans by 0.22-0.75 percent. The three month term loans saw the sharpest decrease from11.56 percent to 10.81 percent. Theinterest rate of one month term loan also reduced from 10.18 percent to 9.48 percent.

Depositors now tend to make longer term deposits in order to enjoy higher interest rates, especially when they guess that the interest rates tend to decrease.

However, experts have advised that commercial banks need to consider the inflation rate when defining interest rates.

Alan Pham, Chief Economist of VinaSecurities told the press that it seems to be impossible for Vietnam to reduce the inflation rate below seven percent as requested by the National Assembly. Vietnam would only be able to curb the inflation rate at below 10 percent even in a best-case scenario. And if the inflation rate is at 8-9 percent, he said, the basicinterest rate should be raised from the current level of 8 percent which could be reach 10 percent by the end of the year.

At the working session with the State bank of Vietnam on April 20, Prime Minister Nguyen Tan Dung asked the bank to be consistent with the positive monetary policies in order to stabilize macroeconomics and prevent high inflation. Dung said that the GDP growth rate of 6.5 percent in 2010 is the goal.

The Prime Minister has requested the central bank to take necessary measures to gradually lower the deposit interest rates to 10 percent and lending interest rates to 12-13 percent per year.

Source: VnExpress

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