Rates set for status quo

Banks are taking a cautious approach to safegard their war chests

“Thus, current interest rate levels are adequate. Lower rates will make banking deposits not attractive enough if inflation is taken into consideration,” said Lich.

The country’s inflation prints have been surprisingly on the tame side in recent months. It posted an 8.7 per cent year-on-year CPI in June, coming after three successive months above 9 per cent.
“Of course, commercial banks would have more room to cut interest rates further if inflation is under control,” Lich added.

Last month, the government requested the banking industry cut deposit rates to around 10 per cent, per year and lending rates to around 12 per cent, per year in an effort to push local business and productions.
At the moment, average market deposit rates stand at 11.09 per cent, per year with the highest offer at 11.19 per cent, per year. Meanwhile, lending rates vary around 12-15 per cent, per year.

Last week, Vietinbank stated that it would extend VND60 trillion ($3.15 billion) in cheap loans at 11 per cent per year, but only for the agricultural sector. Duong Thu Huong, Vietnam Banking Association’s (VNBA) general secretary, said that local lenders were under pressure from depositors and borrowers.

“Depositors want as high as possible deposit rates, while borrowers expect low lending rates. The banking sector is taking cautious steps on lowering deposit rates to maintain adequate deposits. I think lowering interest rates cannot be executed over night,” said Huong.

A BIDV executive said the bank was currently offering deposit rates at 11 per cent, per year. “But, total deposits are still increasing slower than our expectations. Thus, I think current interest rate level will be stable for some time,” said the BIDV source.

Over the first half of 2010, local banks’ total credit rose by 11.36 per cent. Lich believed that the credit growth would reach 25 per cent by the year’s end as the borrowing demand normally picked up in the third and fourth quarter of the year.