VietNamNet Bridge – Banks have raised the demand deposit interest rates dramatically from 2-3 percent to 10-12 percent per annum. Meanwhile, experts have warned that this “brings more harm than good”.

Commercial banks have been raising the interest rates for demand deposits continuously in the last week. VietBank, for example, has raised the interest rate for payment deposits to six percent from 3.6 percent. Viet A Bank is offering the high interest rate of 8 percent per annum for demand deposits worth one billion dong and more.

Prior to that, VP Bank launched VP Super service package applied to clients who transfer money via payment accounts, offering the interest rate of nine percent per annum.

However, that’s hardly enough if noting that Maritime Bank has launched M-Business banking product, offering an interest rate of 10 percent per annum

On March 25, Asia Commercial Bank (ACB) announced new interest rates which saw interest rates for online investment demand deposits jump to 6-9.6 percent per annum from 3.72-6 percent. Especially, clients of SeABank can enjoy the interest rates of 9-12 percent per annum if they put money on SeaSave Smart account.

The State Bank of Vietnam has also said that in the last week, the average interest rates for demand deposits and two-week deposits have been increasing by 0.02-0.41 percent per annum.

When asked about the reasons behind the interest rate increases, the deputy general director of a joint stock bank in HCM City explained that previously, if people made fixed term deposits and withdrew capital before the deposits became matured, they would still get the interest rates based on the actual numbers of deposited days.

However, the State Bank has issued a new document, stipulating that in this case, depositors will only get the lowest interest rates applied by banks. As a result, commercial banks have to raise the interest rates for demand deposits in order to retain depositors. The low interest rates will prompt people to inject money into other investment channels instead of depositing at banks. Meanwhile, the high inflation rates have made depositors hesitate from making long term deposits. They just want to make demand deposits, so that they can withdraw capital at any time, because they always think “the grass is always greener on the other side”.

The deputy director admitted that the high interest rates have led to sharp increases in the proportion of demand deposits in the total deposits. Previously, demand deposits just accounted for 10 percent of the total mobilized capital, while the proportion has increased by several times.

A finance expert has also said that banks have to raise the interest rates for demand deposits in order to lure clients. As all banks are applying the same interest rate of 14 percent for fixed term deposits (14 percent is the ceiling interest rate set up by the central bank), they have to compete with each other in attracting demand deposits.

Besides, the expert said it may happen that banks try to attract more capital to re-lend in the interbank market for profit.

Meanwhile, a member of the advisory council for monetary policies thinks that the competition in the interest rates for demand deposits would bring more harm than good. It would be very risky if demand deposits account for a big proportion in the total mobilized capital. “As banks cannot control the capital, because depositors can withdraw capital at any time, they will not be able to create their business plans,” he said.

“This will threaten their liquidity,” he added.

According to him, the State Bank needs to strengthen control to supervise strictly the operation of banks in order to timely discover problematic banks. If so, the State Bank can prohibit the banks from increasing outstanding loans or apply other measures in order to ease the unhealthy competition.

Tuyet Ngan