That the biggest state owned commercial bank in Vietnam, Vietcombank, from April 5 raised both dong and US dollar deposit interest rates and is widely expected to impact other banks. At the same time, the State Bank of Vietnam said its is also building a more specific direction on interest rates.
Accordingly, Vietcombank increased interest rates for dong deposits for individuals by 0.36-0.96% per year based on different terms. Particularly, the interest rate for 12 months is fixed at 8.16% per year, a rise of 0.6% per month. US dollar deposit interest rates for individuals is also 0.2-0.4% per year higher than previously, bringing the interest rate of 12 month deposits to 3.4% per year, up by 0.35% per year. This is the third time that Vietcombank has raised interest rates of foreign currency deposits since late last year.
In addition, Vietcombank has recently reduced the minimum balance amount for individual accounts by half. Accordingly, the minimum balance amount for dong accounts is regulated at 50,000 dong, for US dollar accounts US$15 and other accounts US$15.
The US Federal Reserve in recent months has frequently hiked its key interest rate and has indicated its intention to further raise its key rate. Therefore, Vietcombank’s interest rate hike is understandable and conforms to developments linked to international market moves. Moreover, foreign currency deposit interest rates in Vietnam have long been reined in at low levels,” said Vu Viet Ngoan, Vietcombank’s general director.
Domestic currency interest rates of Vietcombank in particular and of the whole banking system in general, Ngoan said, are undergoing significant pressure from rising consumer prices. Deposit balance of Vietcombank in the first three-months inched up by just 1%. “The interest rate of two-year government bonds is far higher than deposit rates offered by of banks,” Ngoan said adding “Prior to this move the SBV had also attempted to tighten monetary policy by raising the US deposit interest rate ceiling applicable to banks and hiked the refinancing and discount interest rates.”
Together with the decision on pushing up deposit interest rates, Vietcombank is also about to adjust lending interest rates. However, Vietcombank will “moderately increase lending interest rates to meet capital demand of the economy,” said Ngoan. If Vietcombank does this, Ngoan said he believed other banks sooner or later would increase interest rates because they also face significant pressure on rates the same as Vietcombank.
General director of Vietnam International Bank (VIBank) Le Dinh Long commented that Vietcombank’s rate hike move is an important factor that acts as an impetus on interest rate policies of most other banks. VIBank, in turn, right from the start of April, pushed up the US dollar deposit interest rate to 3.3% for 12-month terms. Additionally, the dong deposit interest rate of VIBank is now equal to that of Vietcombank, that is 8.16% per year for 12-month terms.
“We will consider Vietcombank’s decision together with other factors in order to weigh up a appropriate interest rates for our bank. However, we believe that an interest rate race among banks will not break following Vietcombank’s move,” said Long.
According to Le Dac Son, general director of Vietnam Bank for Private Enterprises (VPBank), VPBank said his bank had not yet planned to raise interest rates because deposits at VPBank are stable, disposable capital remains abundant because borrowing demand of businesses in the early months was not particularly high. Nonetheless, Son added that “any new interest rates moves [by competitor banks] are always watched closely by all banks and whether to increase interest rates or not depends on deposit levels as well as available capital to meet lending demand of each bank.”
“Given the current situation, a race to hike interest rates to attract depositors is not likely as banks are still considered the best and safest investment channel and accordingly, people will continue to place their idle cash in banks despite the jump in consumer prices,” commented Long from VIBank.
Regarding the targeted economic growth of 8.5% and inflation of below 6.5%, many experts viewed that the two figures set by the National Assembly make anticipating the future very difficult for banks. “Last year, the GDP growth was 7.7% and inflation ended the year at 9.5%. This year, the NA has targeted a higher GDP growth while inflation is expected to be controlled at a lower level. This is really a challenge, particularly for banks,” said one worried banker.
According to an official of the central bank, inflation in 2004-2005 is mainly attributed to increases in food and foodstuff prices. Facing up to this situation, the SBV is speeding up construction of a more specific direction on interest rates to obtain approval from the National Financial, Monetary Policy Advisory Council and submit to the government. Such a policy is designed to administer monetary policy while still maintaining economic growth and controlling money supply and ensuring sound credit activities. Raising the refinance and discount interest rates indicates that the SBV acts as final lender and banks should pay more attention to raise capital from the public.