Some banking experts said it would be difficult to complete the roadmap to lower deposit rates to 10.2 – 10.5 percent per annum by late September 2010. The credit growth target for the rest four months of the year remains relatively high at 10 percent (of the total 25 percent yearly target), and it would be unlikely to be achieved.
Failed to adjust deposit rate at 10 percent per annum on time
Many banks have increased their deposit rates to attract capital. According to Trustbank’s general director Tran Son Nam, the bank has applied different interest rate indices for different provinces, even for different branches, following the amplitude of 0.5 percent of the deposit rate at ceiling level, in order to attract capital from outlying provinces to boost lending in the end of the year. Nam explained that currently the bank has provided 780 trillion dong loans, completing the planned target of the whole year, and the bank expects to use an additional one trillion dong to lend out to the economy.
The increase in deposit rates of a bank may force other banks to push up their deposit rates accordingly in order to keep customers and market shares. vice director general of the Military Bank (MB) Cao Thi Thuy Nga said, the bank itself also wants to cut deposit rates to create the difference between deposit and lending rates, but it is difficult to be done at the present time. Other banks are pushing their deposit rates higher to ensure liquidity in the remaining months of the year, as well as to meet the regular payment needs in the end of the year of businesses. In fact, the current deposit rates are even at higher level than they were at the time banks agreed to lower interest rates.
In the meeting among SBV’s Governor, representatives of Vietnam Banks Association (VNBA) and general directors of some commercial banks in Hochiminh city and Hanoi on June 25, 2010, the direction and roadmap to cut deposit and lending rates in dong have been agreed. According to that, from July, deposit rates would be reduced to about 11 percent per annum and to about 10.2 to 10.5 percent per annum by late September.
However, deposit rates are still popular at 11 to 11.2 percent per annum.
Looking at the number of transactions on the open market operations (OMO), people may think the liquidity of banks has become more abundant. However, in the last week of August, SBV has withdrawn 4.7 trillion dong, and it was the fourth consecutive week, the operation scale of OMO has been narrowed with the total registered capital for bidding at 28-day term fell by 71 percent compared to the previous week, capital registered for bidding at 14-day term decreased by 41 percent.
The registered capital for bidding to bidding value ratio hit a rarely seen low level of 37 percent.
Nevertheless, many people believe that the decline of transactions on OMO is due to the concerns of banks about Circular No.13, which stipulates the safety rates in operation of the credit institutions. Therefore, activities of banks have somewhat been slowed down, leading to a reduction in borrowing demand on OMO of banks.
Circular No.13 would help ensure the safety of the system, but in the immediate future, it still causes difficulties to banks in meeting the credit demand the end of the year.
Many banks have lowered their percentage of ownership in other businesses. In particular, Vietcombank has registered to sell two million PVD shares, and 10 million EIB shares. Eximbank has also sold 550,000 FDC shares, while Sacombank succeeded in its IPO for SBS and SCR, and lowered by half their investment capital into BHS, etc.
Many banks have completed their plans on capital increase and been approved.
The divestment and the capital increase are to meet the provisions of Circular No.13. Once this task is completed, banks would be likely to increase lending activities.
For example, there is recent information mentioning that Vietinbank would sell 10 percent stake to IFC to get $190 million. However, it is still in the future. According to published information of this bank, after selling shares to strategic partners, Vietinbank’s charter capital would be about 23 trillion dong. CAR of the bank would reach eight percent, and it will continue to strive to reach nine percent as required by SBV.
In addition, banks said the deduction of 20 percent of the mobilised capital to ensure the system’s safety would increase operational costs of banks and lessen the opportunities for the economy. For the total capital of 676 trillion dong mobilised in Hochiminh city area to early August 2010, the 20 percent deduction for reserve fund has already been 135.2 trillion dong, a very large amount, which could reduce the opportunities to cut interest rates.
Those main barriers have made banks to be difficult to stimulate credit growth, partly because businesses do not borrow, as lending rates are high, partly because banks are hesitant to boost the growth, since they are afraid of failing to ensure the safety ratios stipulated in Circular No.13.
SBV’s Governor Nguyen Van Giau confirmed that SBV would base on the bank’s reports after three-month preparation before implementing Circular No.13 to decide whether any modification should be made.
If banks strictly conduct the reports, the synthesis report would be completed this weekend. Based on the practical difficulties proposed by banks, SBV would make amendments to most benefit over 83 million Vietnamese people, added Giau.