Interest rise sparks fear of rate war follow new pressures

Rate war: Local banks face increasing pressure to compete Rate war: Local banks face increasing pressure to compete

Sacombank last week decided to raise its annual interest rates by 24-42 basis points to 6.42 per cent, 7.92 per cent, 8.22 per cent, 8.58 per cent, 8.76 per cent, 8.94 per cent, 9.18 per cent and 9.36 per cent for dong savings for one, three, six, nine, 13, 18, 24, and 36 months, respectively. This is the second time the country’s biggest joint stock commercial bank has raised its savings interest rates in the past two months.
Sacombank general director Le Tan Loc said the fresh rate hikes were in line with recent rate movements on the market, though Sacombank’s earlier rates were not lower than those quoted by other banks.
“Other banks have recently taken various measures to raise their rates, so we consider hiking our rates a wise decision,” he said.
The Asia Commercial Bank (ACB) followed suit, increasing its annual dong rates by 24-48 basis points to 6.48 per cent, 8.04 per cent, 8.28 per cent, 8.64 per cent, 8.76 per cent, 9.12 per cent and 9.36 per cent for funds with one, three, six, nine, 12, 24 and 36 months, respectively.
Nguyen Gia Dinh, the general director of Vietnam Import-Export Bank (Eximbank), said his bank was also inclined to increase rates for dong funds.
“There are so many reasons to raise dong rates, including the recent nudge in the central bank’s refinancing and discount rates, a higher consumer price index and a force to increase dollar rates after the US Fed’s adjustment,” he said.
Central bank officials have predicted that domestic banks are likely to continue raising interest rates for Vietnamese dong savings for the rest of the year, particularly to avoid stagnancy in capital mobilisation activities.
The country’s economy is in great need of capital to reach its targeted annual growth rate of 8.5 per cent. According to the central bank, to obtain this goal, Vietnam must achieve a credit growth rate of more than 25 per cent.
Several local banks contacted by Vietnam Investment Review said capital inflows into their banks had been slowing down due to public concern over Government Decree 74 on money laundering, which will come into effect on August 1. This has forced the banks to consider increasing the interest rate on deposits.
Tran Phuong Binh, general director of the Eastern Asia Commercial Bank (EAB), said funds were moving into his bank at a slower rate because of worries over the decree.
A similar situation was also reported at other major State-run banks, including the Vietnam Bank for Foreign Trade (Vietcombank), the Bank for Investment Development of Vietnam (BIDV), the Industrial and Commercial Bank (Incombank), and the Bank of Agriculture and Rural Development (Agribank).
Decree 74 stipulates that any transactions worth VND200 million ($12,738) or more, and any savings account comprising more than VND500 million ($31,847), must be reported to the Centre for Fighting Money Laundering, which has already been set up by the central bank.
Local commercial banks have also been under pressure to raise their interest rates since the consumer price index (CPI) hit a high alert level.
The CPI, the basis for calculating inflation, climbed 5.2 per cent in the first half of the year. The government hopes to keep CPI within the 6.5 per cent level for the whole year - a difficult task given the growth in the first half of 2005.