Vietcombank’s decision to hike its dong-based deposit interest rate to the rate ceiling on September 19 just four days after the bankers’ accord on restraining interest rate hikes took effect means a new interest rate war would continue thus reheating Vietnam’s monetary market.
As Vietcombank is seen as the “big brother” in the country’s banking sector, it is likely that the dong interest rate ground will slowly reap nearly 10% by the end of this year.
From yesterday September 19, Vietcombank’s dong rate for a one -60 month term in Hanoi and HCM City will synchronously increase by another 0.24-0.6% a year, especially the strongest at a 24-month term.
Thus, Vietcombank’s Hanoi and HCM City branches took advantage of this to hike its ceiling rate for six and one-year terms to in turn 7.8% and 8.4%, equal to the highest rate capped by the Vietnam Bankers Association (VNBA) that took effects from September 15.
General director of Vietcombank Vu Viet Ngoan said that basically, Vietcombank still ran too slow in comparison with other banks. “The interest rate ground was already put at highs for a long time, some banks have raised their rate to over 8.4% and even 9% a year. Vietcombank could not keep up its current interest rate,” said Ngoan.
The bank’s interest rate hike was completely based on the imbalance in the supply and demand of capital on the market. However, Ngoan did not hide away his worry on “losing customers” as the bank’s rivals are continuously in the interest rate races. Its slow deposit growth of 6%-7%, so far this year forced Vietcombank to calculate to restrain its credit growth speed.
Ngoan said that with this trend, Vietcombank’s deposits would grow only 10% for this year, and its credit growth would also reach only 13%.
“The interest rate ceiling proposed is only regarded as a sign showing the goodwill of state-run banks in attempting to restrain the interest rate increase. Actually, the common interest rate ground on the local monetary market has increased highly for a long time,” Ngoan admitted.
Each step of Vietcombank has long since been closely watched out by other rivals, especially joint stock commercial banks. However, Ngoan did not believe that the joint stock commercial banks bloc would en masse increase the interest rate immediately following the moves by Vietcombank. “Joint stock commercial banks are very dynamic and they do understand that Vietcombank has been reluctant to keep its deposit interest rates at such low levels,” said Ngoan.
The Bank for Agriculture and Rural Development of Vietnam, or Agribank is also not happy with Vietcombank’s breaking the mould of the common agreement chaired by the VNBA. However, Agribank’s flexible interest rate policy that allows its branches to hike the rate in order to have enough competitive strength with other banks in the same localities is also thwarting its “state colleagues” and likewise joint stock commercial banks.
So far this year, deposits of Agribank have only increased 7% while its credit growth has gained only 6.6% against the same period last year.
It would appear that joint stock commercial banks are not surprised at Vietcombank’s rate hike. General director of the Hanoi-based VPBank Le Dac Son said that state-run banks’ boosting the rate to the interest rate ceiling is literally understandable. “It would be better if banks made a firm commitment to together restrain the rate at a lower level, or at least a rate ceiling. However, recently they reached an accord to hike the rate at a higher level compared with the former agreement chaired by the VNBA. Of course, the above accord shows it’s high time the rate had to be boosted equal the common interest rate ground of the market,” analysed Son.
Under the VNBA accord took effects from September 15, joint stock commercial banks were allowed to apply their deposit interest rate not exceeding 0.003% a month, or 0.36% a year compared to the rate ceiling for the same term of state-run banks.
However, Son reckoned that no joint stock bank would comply with this accord. “Joint stock commercial banks will continue to make adjustments on their rate based on the supply and demand for capital on the local monetary market as long as they are still running effectively and profitably,” Son said.
Currently, VPBank still ranks top among banks in the 12 month-term deposit interest rate in dong standing at over 9% a year. Therefore, by September 13, this bank’s deposits have recorded 4.4 trillion dong, up 80 billion dong compared with August 25—the latest rate hike of VPBank.
Since the start of this year, the deposit growth of VPBank has recorded 40-50%, nearly doubled its credit growth.
Although the top leader of VPBank did not disclose the bank’s next interest rate plan, according to him, with this trend, the common dong-based interest rate ground of local banks will be pushed up to 9.5%-9.6%, and even 10% a year.
Ngoan also did not hide away Vietcombank’s plan to hike its lending interest rate in the near future. VPBank’s Son calculated that in the case if the deposit interest rate increases to 9.5% a year, the lending interest rate will likely climb to 13-14% a year.