VietNamNet Bridge – Though the capital shortage has been eased, and it is now easier to seek capital from the interbank market or from the public, some commercial banks still accept to pay alot to attract more deposits.

Interest rate remains the key in the banks’ competition

According to the State Bank of Vietnam, the credit growth rate in the first seven months of 2012, including the corporate bonds was very low, at just 1.06 percent over the end of 2011. Meanwhile, the dong mobilized capital increased very sharply by 12 percent over the end of 2011.

The current situation proves to be quite different from the previous years, when the credit growth rates were always higher than the mobilized capital growth rates, thus putting liquidity difficulties for many banks.

With the big gap of the mobilized capital over the lent money, the reports released by the State Bank of Vietnam recently all show optimistic signs about the liquidity of the banks.

Commercial banks have also proved that they now have capital in excess--when they spend trillions of dong to buy bonds, despite the bond low interest rates. Banks have also repeatedly launched special credit programs, offering the lending interest rates just equal to the deposit interest rates.

Some banks have announced the programs to provide real estate credit with the preferential interest rates of zero percent for the first 3-6 months and the average interest rate of below 10 percent.

The low inflation rate, plus the continued ceiling deposit interest rate reductions in recent days, along with the prediction about the possible further one percent interest rate reduction--in the time to come, all seem to back the downward trend of the deposit interest rate.

However, in fact, banks still have been joining the race of raising deposit interest rates, striving to mobilize more capital, especially long term one.

As for short term deposits, some joint stock banks still pay higher than the ceiling rate of 9 percent per annum as stipulated by the State Bank. Some banks offer the interest rate of 10.3 percent, others at 12 percent per annum for 1-3 month term deposits.

Especially, depositors and banks still negotiate about the interest rates. In general, those who deposit 500 million dong and more would be able to enjoy the interest rate of 11 percent, while the deposits worth over one billion dong may get 12 percent.

Higher interest rates have been offered for long term deposits. Since the beginning of August, medium and long term deposit interest rates have been raised to 10-12 percent per annum.

Bac A now pays 11.9 percent for over 12 month term deposits, SeABank 11 percent, Vietcombank 10 percent, higher by 0.5 percent than previously.

The liquidity and bad debt obsession

Explaining the decisions to raise deposit interest rates, banks said they need to restructure the capital. In the past, when the government tightened the monetary policies, people preferred making short term deposits (90 percent). This has led to the fact that banks have short term capital in excess, but lack long term capital for lending.

Therefore, banks now try to seek more long term capital to settle the imbalance in the capital terms. They now have been pushing up the real estate and consumer credits, which all demand long term capital.

Experts have predicted that the lending interest rate reductions would lead to the lending growth. Meanwhile, banks believe that they need to prepare well to be ready for disbursement.

Pham Nam Kim, an economist, believes that the interest rate reductions show that though the liquidity has been improved, but it has not fully recovered yet.

Tran Thuy