Banks’ tussle for deposits

Rate hike: banks are using interest rates to try to attract deposit funds

The race started early in July, with the latest moves being the rate increase at the Hanoi-based Bank for Private Enterprise and the certificates of deposit (CDs) of the Ho Chi Minh City-based Phuong Nam Bank.
PNB last week offered rates as high as 9.12 per cent, 9.36 per cent and 9.72 per cent for dong CDs with terms of four, seven and 11 months. Its dollar CDs are attractive as well, carrying rates of 4.7 per cent, 4.9 per cent and 5.2 per cent for the corresponding tenors.
Asia Commercial Bank, Vietnam’s largest part-private bank by assets, has already bid for new funds by raising the rates on dong deposits and savings by between 0.24-0.6 of a percentage point. Its 12-month deposits now yield 9.18 per cent, up from 8.7 per cent previously.
On the interbank market, four state-run banks, Vietnam’s key lenders, raised overnight dong loans to 6.2-6.3 per cent last Monday from 6.0-6.3 per cent a week ago. Six-month loan rates were unchanged at 8.5-8.6 per cent.
Several joint stock commercial banks are poised to mobilise extra capital on US dollar lending by increasing their rates to reflect US Federal Reserve’s latest move to increase its interest rate by 25 basis points to 5.25 per cent at the end of June.
The Ho Chi Minh City-based Export and Import Joint Stock Commercial Bank, for example, raised its rates on US dollar deposits by between 0.2 and 0.6 percentage points.
According to a report by the central bank’s Monetary Policy Department, the trend in rising deposit interest rates over the past few weeks was a result of both exposure to the international market and fierce competition among domestic commercial banks.
The report said joint stock commercial banks (JSCBs) rolled out the highest increases in interest rates, while state-run and foreign banks had more modest increases. Interest rates at JSCBs were considerably higher than those at state-run institutions, it said.
Notably, lending rates at banks remain unchanged despite the higher capital costs. Some analysts are concerned that corporate borrowers will be hard hit if banks charge higher rates for their loans, thus affecting the economy.
Nguyen Phuoc Thanh, director of the Ho Chi Minh City branch of the Bank for Foreign Trade of Vietnam, said that total lending at commercial banks amounts to just 60 per cent of total deposits, noting that when banks increase interest rates, domestic enterprises, especially import-export companies, hesitate to borrow.
Tran Ngoc Minh, director of the State Bank of Vietnam’s Ho Chi Minh City branch, warned that commercial banks should try to avoid unnecessary competition when mobilising capital using higher deposit interest rates.
He said commercial banks should not be too concerned about short-term trends in US dollar lending because it remains more enticing than the dong equivalent. Additionally, exchange rates of dong against the US dollar have remained stable, he added.




No. 770/July 17-23, 2006