Banks on mission to hunt deposits

“This is bizarre to me as so many banks inviting me to deposit money,” said Van.

Techcombank staff told Van that the bank could offer deposit rates of up to 13 per cent, per year for above VND500 million ($25,000) while staff from Military Bank committed to offer promotions. “Responding to my question why they insisted me to deposit, they said that they were under pressure to mobilise money from individual depositors,” said Van.

Le Huy Dung, general director at Dai A Bank, said mobilising funds was a headache for local banks.

Duong Thu Huong, general secretary of Vietnam Banking Association (VNBA), said an interest rate race would likely pull deposits from a bank to another like a “vicious circle”.

“All banks have to hike deposit rates in fear that their customers shift deposits to a competitor. Meanwhile, total deposits in the system will not change much,” said Huong.

Nguyen Thanh Toai, deputy general director at Asia Commercial Bank, admitted that in this “interest rate race”, it is not easy for all local banks.

“Deposits will simply move around from bank to bank while market interest rate goes up,” said Toai.

Van ultimately decided to withdraw VND200 million ($10,000) from Vietcombank to put in Techcombank for higher returns.

According to the State Bank’s report, local banks are offering deposit rates around 12.5-13 per cent, per year. This level is roughly 1-1.5 per cent higher than early November. As a result, banks also lifted lending rates. Lending rates climbed to 14-19 per cent last week.

Three weeks ago, the State Bank, in an effort to curb inflation, signaled monetary tightening by lifting the base rate from 8 to 9 per cent for the first time since last December. On the other hand, the authority no longer pushed local banks further cut market interest rates to 10 per cent per year for deposit and 12 per cent per year for lending as requested by the government earlier this year.

Last week, on interbank market where local lenders borrowed each other short-term fund, rates for loans stood at 14-18 per cent per year for overnight, one-week, and one-month terms.