Banks up non-term rates for big savers

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The move has been viewed as a workaround to a new State Bank of Vietnam regulation that has banned commercial banks from paying higher interest on term deposits when the depositors withdraw funds before maturity.

VietA Bank offers 3.6 per cent on standard non-term deposits, but now offers 6-8 per cent per year for deposits of VND20 million ($952) to VND1 billion ($47,619).

VP Bank, similarly, now offers 9 per cent interest on larger deposits, compared to a normal rate of just 3 per cent.

State Bank of Vietnam Circular No 04/2011/TT-NHNN, which took effect last week, barred banks from paying high interest on term deposits which did not reach their full term. In other words, it mandated that depositors who withdrew funds early be penalised and receive the lower interest rate offered on non-term deposits.

Banks had encouraged the practice because the term deposits are considered "medium-term" funds under State Bank regulations and are not subject to current provisions limiting lending to no more than 30 per cent of "short-term" capital.

Commercial banks now seem determined to attract greater amounts of "short-term" capital by offering higher interest rates on larger deposits.

"I know for certain that many depositors have also been putting their capital in very short-term deposits, like one or two weeks, and then letting the deposits remain beyond the maturity date in order to enjoy the higher interest rates," said a top executive at a state-owned bank in Hanoi who asked that her name be withheld.

"Several banks are being tricky trying to dodge central bank regulations," she said. "The central bank regulation, in principle, was designed to make capital sources at banks more stable and safe. If the market can do that, that's good. However, by such tricks, capital structure are going to become even more unstable and fragile."

An executive of a private Ho Chi Minh City-based bank, who also wished to remain anonymous, agreed that higher non-term deposit interest rate would raise capital input costs and narrow profit margins for banks.

A central bank report released on March 17 showed that, during the past week, interest rates on term deposits in Vietnamese dong remained at around 13.5-14 per cent, while interest rates for term deposits in US dollars ranged at 4.2-6 per cent.