Banks surpass limit on deposits

Clients use bank services at Housing Development Bank (HDBank)in HCM City.  photo Tran Viet

The higher return contravenes an agreement made between the banks and the Vietnam Banks Association (VNBA) last Friday that the interest offered for deposits would go no higher than 12 per cent.

The decision was made after the central bank raised the prime rate to 9 per cent.

It is found that nominal interest rates are at 12 per cent for most term deposit.

But some bank officials have been told to call depositors and offer at least 13.5 per cent with other incentives.

Seabank even quotes 13 per cent for 12-13-month deposits on its public board.

The yearly interest rate at Western Bank totals 15 per cent per year when a 3-per-cent bonus for total deposits is added to the 12 per cent on offer.

Senior bank officials say retaining depositors has become very difficult as people worry about growing inflation and more expensive gold and dollars.

Rate war?

And as Friday's interest-rate agreement does not prohibit promotions, there is the danger of an interest rate war.

The VNBA says it cannot interfere in promotion campaigns.

State Bank of Viet Nam Governor Nguyen Van Giau and its Monetary Policy Department director Nguyen Ngoc Bao were not available to respond yesterday.

But director Bao said earlier this week that the central bank would not intervene in the agreement among banks to cap interest at 12 per cent.

Asia Commercial Bank deputy general director Nguyen Thanh Toai pronounced: "Interest rates are now afloat. The consequences will be tighter money."

The higher interest would help banks attract more idle money and in so doing, it would help the central bank drain more money out of circulation to reduce inflationary pressure, the general director explained.

The government announced last week that it would impose a floating interest rate mechanism for the dong because the yearly target for economic growth seemed sure to be met and the emphasis now was to curb inflation which hit almost 10 per cent in October.

A BIDV capital manager, who asked for anonymity, said: "It's very difficult to predict short-term interest rates.

The government's capacity to manage will be crucial to the outcome but more expensive capital will definitely tug borrowing costs and discourage new loans."

The State Bank is expected to eventually use the market, change refinancing and discount rates or bank compulsory reserve ratios to stabilise interest rates.