Banks embark on interest rate race

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After the central bank (SBV) decided on letting banks to fix their more than 12-month deposit interest rates from June 11, 2012, banks have stepped into a new interest rate hike race to lure depositors.

On July 14, Western Bank lifted its ceiling mobilising rate to 14 per cent per year for 13-month deposits. However, four days later the bank pulled down the rate to just 12.5 per cent per year.

SBV deputy governor Le Minh Hung assumed the move was a correct step to gradually remove the ceiling interest rate scheme.

“”Since lending rates are on downward trend, banks accepting high borrowing costs will surely be hurt,” said Orient Commercial Bank (OCB) chairman Trinh Van Tuan.    

Tuan said banks’ input rates might slide further.

A Hanoi branch director of a joint stock bank said ceiling mobilising rate would be no longer needed since the bank was financially healthy and there were few borrowers.

“If the ceiling mobilising rate was removed, possibly some banks could drive up the rates like the recent case with Western Bank. But this race could soon end as banks are struggling to lend,” said the director, added that if so the bank would peg its ceiling mobilising rate at about 11-12 per cent, per year.

“Plummeting inflation and contracted credit growth are auspicious factors to kill ceiling interest rates. The rate hike race is unlikely to come true since banks cannot boost lending,” said National Financial and Monetary Policy Council member Cao Si Kiem.

Economic expert Le Tham Duong said underperformed banks created  chaos in the market and if these banks were radically treated in June as once declared by the SBV governor, there would be no reason to retain mobilisation  ceiling.

Echoing the idea, financial expert Nguyen Tri Hieu assumed ceiling interest rates might be abolished in the third quarter or not later than the fourth quarter, but feeble bank issue must be entirely tackled to make the banking sector healthy.

Industry experts said the market could wobble after mobilising rates were removed. “However, after that the interest rate will stay stable at a rational level truly reflecting the supply-demand rule,” said National Financial Supervisory Commission deputy chairman Ha Huy Tuan.