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VietNamNet Bridge – Long term capital has been flocking to commercial banks
which now offer high interest rates after the State Bank of Vietnam removed the
ceiling interest rate on long term deposits. However, banks have been warned
that the capital might turn into “virtual capital.”
Under the latest decision by the State Bank of Vietnam, since June 11, 2012, the
12 month and longer term deposit interest rates would be defined by commercial
banks based on the market conditions.
A senior executive of Ernst & Young Vietnam, an auditing firm, said that the
banking system has been thirsty for capital and “living from hand to mouth” for
a long time. Therefore, the savings market in Vietnam has become deformed.
Medium and long term capital has not been found, or it has been existing only on
paper.
Therefore, the State Bank hopes that when lifting the cap on long term deposit
interest rates, the interest rate performance would return to the normal track,
i.e. that long term deposits would have higher interest rates, while short term
lower.
According to Nguyen Thi Mai Huong, Deputy General Director of Ocean Bank, since
early March 2012, when the State Bank has been continuously slashing the ceiling
deposit interest rate from 14 percent to 9 percent, depositors tend to make long
term deposits instead of short terms, simply because they can enjoy higher
interest rates. There is also another reason behind this: people fear that the
interest rates would drop further, once the government has shown its
determination to make bank loans accessible to businesses.
In the past, the deposits at the bank were mostly short term ones. Meanwhile,
six-month, nine-month and 12-month term deposits account for a bigger proportion
in the deposit structure.
Banks raise interest rates to lure more capital
Right after the new decision was released, banks all have raised the interest
rates for long term deposits. Ocean Bank, for example, now pays 10 percent per
annum for 12 month term deposits, 10.2 percent for 13-24 month and 10.5 percent
for 36 month term deposits.
“The capital flow has been growing stably. Most of the deposits are worth 10-500
million dong, and most of them are long term ones,” Huong said.
Meanwhile, other banks offer much higher interest rates. SeAbank, for example,
offers the 12.8 percent interest rate at the highest, applied to those who
deposit 2 billion dong and more for 24 months.
At HD Bank, depositors would enjoy the interest rate of 10 percent for less than
1 billion dong deposits. Meanwhile, if depositing more than 1 billion dong, they
would receive 11 percent per annum. Especially, some banks offer the long term
deposit interest rates which are even higher than short term lending interest
rates.
Unhealthy competition anticipated
In an effort to attract more capital, some banks have been applying a flexible
policy, allowing depositors to enjoy the high initially negotiated interest
rates, even though they withdraw money before the scheduled time.
Dr Nguyen Tri Hieu, a banking expert, said some small banks need to retain
clients and they need medium and long term capital, therefore, they have to push
the interest rates up. However, Hieu said that in principle, when people
withdraw money sooner than expected, they would only be able to get the low
interest rates for demand deposits, or pay fines to the banks.
“If the State Bank floats the interest rates, the market would operate in
accordance with the economic laws and the supply-demand basis,” Hieu said.
Meanwhile, president of a big joint stock bank said that by applying the policy,
banks try to dodge the laws to pay high interest rates for short term deposits,
because they do not impose fines on the deposits to be withdrawn before the
maturation.
Phuoc Ha
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