Deal breakers to find nasty sting in the tail

The majority of local lenders are playing by the rules

The Vietnam Banking Association (VNBA) in early July organised meetings with banks in which local lenders pledged to pull down maximum deposit rates to 11 per cent, per year from July 5, to 10.5 per cent, per year in August and 10 per cent per year in September.

Local lenders have so far brought the deposit rates down to 11-11.2 per cent, per year.

On July 6, the State Bank issued Document No.5065/ NHNN-CSTT requesting local lenders respect the agreements and warned it would apply disciplinary measures to stop banks breaking the agreement.

 “Of course, the State Bank has no ground to apply any official punishments for agreement breaches, but as the ultimate lender to commercial banks, it has the right to allocate cheap loans to banks. So, the agreement breakers might be in a disadvantageous position when asking for loans,” said a BIDV source.

The State Bank normally extends loans to local banks via open market operations with collateral being valuable paper such as government bonds. At the moment, loans are from one to four-week terms at 7-7.5 per cent, per year. Additionally, the authority also provides cheap loans to commercial banks via the refinancing window.

“The cheap loans are not unlimited. Thus, banks that breach the agreement might not receive assistance loans when needed. This belongs to the moral category. The agreement is aimed at making the banking market better, it should be respected,” said the BIDV source.

In Document No.5065, the State Bank said “lenders should strictly respect the agreement and provincial State Bank branches will closely watch over this”.

VNBA general secretary Duong Thu Huong said that if a bank broke the agreement, it could be discriminated against by peers.

“Banks need each other to survive. That’s why they are borrowing each other on interbank market. If a bank is not fair-play to other peers, they might find it hard to borrow on interbank market,” she said.

 The interbank market is where local lenders borrow each other short term funds.