Foreign banks break interest rate hurdle
15-MAY-2008 Intellasia | Dau Tu Chung Khoan page 25
May 15, 2008 - 7:04:00 AM
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Many banks recently have competed together on the market by adding promotion programmes along with the ceiling deposit rate of 12% per annum, which urged other banks to draw up plans of interest rate to woo customers. Last week, there were rumours that branches of foreign banks broke the interest rate hurdle.
Before the exactly defined situation, domestic banks said that while foreign bank branches raise capital with a higher interest rate, State Bank of Vietnam should abolish the ceiling deposit rate for local banks.
Reply to Dau Tu Chung Khoan, a foreign bank's general director in Vietnam spoke that his bank still has mobilised capital with the interest rate no more than the allowable ceiling level of 12% per annum. However, according to his comprehension manner, the ceiling deposit rate for the dong pursuant to SBV's Official Note No 02/CD-NHNN dated February 26, 2008 was abolished after the prime minister ordered not to maintain the ceiling level. Therefore, the ceiling deposit rate is only applied on member banks of Vietnam Banks Association.
However, a bank staff said that the bank willingly pays an interest rate of 13.97% for the one-month deposits worth over 200 million dong. Given comment on the event, according to a SBV official, the central bank's Official Note No 2 ruling the ceiling deposit rate at 12% pa was understood that it could be applied on all banks operating in Vietnam, including branches of foreign banks. In fact, to date SBV has not yet released any document to abolish Official Note, so commercial banks still are forced to impose the ceiling rate.
The SBV official admitted, Official Note No 2 was applied on domestic commercial banks but ignored foreign bank branches. In theory, it is hard to say that foreign banks violate regulations on ceiling deposit rate.
During some recent days, a lot of customers withdrew a money amount of hundreds of billions of dong, but specialists assessed the money withdrawal was not caused by attractive interest rate of foreign bank branches.
Currently, most banks have their own way to dodge the ceiling rate. Meanwhile, the move that foreign banks' branches are seeking to raise capital with a higher interest rate is normal. Thus, keeping the ceiling rate is nominal only, the SBV official emphasized.
Prof Dr Nguyen Thi Mui, member of National Monetary Policy Advisory Council gave her opinion that foreign banks' deposit rate now is more attractive than domestic banks'. Therefore, the foreign banks' move to hike deposit rate is a warning on local money keepers because they are making big efforts to expand market shares in Vietnam. Apart from advantages on technology and parent bank's support, these branches also have a lower administration cost thanks to smaller network. If local banks continue to be drawn in the interest rate race (after the ceiling rate is abolished), they can lose a large number of customers by competitive advantages of foreign banks. This is really a long-term danger signal.
According to SBV, the maintaining of 12% pa deposit rate is unreasonable and it is possible that SBV could abolish the regulation. SBV is studying management measures to stabilise market in case the ceiling rate is not kept any longer, an official said.
Some proposed that the central bank should maintain the ceiling deposit rate for the dong to avoid the interest rate race that ever happened in February. According to other specialists, there should be no intervention in interest rate at the moment.
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