VietNamNet Bridge – The monetary market has become scorching hot when the deposit interest rates have climbed to 17-18 percent per annum, while businesses have to borrow capital at the interest rates of 21-23 percent per annum.

On May 11, the State Bank of Vietnam released a bulletin about the banking operation in April 2011. The bank said that the average deposit interest rate in April was 13.41 percent per annum, while the average lending interest rate was 17 percent. The highest lending interest rate reached 18-22 percent per annum, applied to consumer loans. Some small banks applied the interest rates of 6-9 percent per annum for demand deposits.

The figures show that the interest rates remain stable and the market remains “peaceful”.

However, local newspapers these days report that in reality, the deposit interest rates have climbed to 17-18 percent per annum, even though the State Bank of Vietnam has ordered commercial banks not to pay more than 14 percent per annum for deposits. Meanwhile, the actual lending interest rates have surged to 24-25 percent or even 27 percent per annum.

Meanwhile, commercial banks have been trying to launch promotion programs to attract capital from the public. The Bank for Investment and Development of Vietnam BIDV, for example, is running the promotion program worth 22 billion dong after the program which offered three Mercedes cars and other valuable awards to prize winners is finished.

Dr Le Dang Doanh, a well known economist, commented on Dat Viet that the current interest rates are overly high, and that he fears that this may lead to the bustling of the asset bubble one day. With such sky high lending interest rates, businesses cannot access bank loans to maintain production.

However, despite the escalating interest rates, the total mobilized capital volume still has decreased.

According to the State Bank, the total deposit balance of clients at credit institutions by April 21, had decreased by 1.09 percent over the previous month, while the figure represents a modest increase of 0.46 percent if compared with the end of the last year.

A director of a commercial bank said on Thoi Bao Kinh te Vietnam, “Maybe the money in the national economy has got exhausted, or the current interest rates are not high enough to protect depositors from the high inflation and attract capital to the banking system;” when he was asked to comment about the figures.

The same newspaper has quoted Nguyen Thi Mui, a well known economist, as saying that by April 28, 2011, the deposits made by businesses at Vietinbank, one of the biggest banks in Vietnam, had dropped by 17.1 percent in comparison with December 31, 2010, and decreased by 5.77 percent in comparison with March 31, 2011.

The escalating interest rates and the capital shortage, in fact, have left commercial banks in a cold sweat. Phan Kim Dung, a depositor, said that a bank asked her to inform the bank 1-2 days in advance if she wants to withdraw deposits. Meanwhile, the sum of money Dung deposited is not big, just 200 million dong, but it is still big enough to cause difficulties to the bank.

High interest rates prove not to be a surprise to any one. Dr Le Tham Duong from the HCM City Banking University said on a local newspaper that the 14 percent ceiling interest rate only fits a certain period and the interest rates would increase after that.

Tran Du Lich, a Member of the National Advisory Council for Monetary Policies, said that the interest rates won’t go down until the inflation rate remains high. The current interest rates are overly high now, which must not be raised, but it is necessary to maintain the interest rates at that levels.

C. V