Interest rate fly high as inflation rocks banks

Banks are struggling to keep pace with a fast-changing market

For example, accountant Pham Ha Bao told VIR that last week she was offered to renew her maturing VND200 million ($10,000) deposit with a 16 per cent, per year interest rate. The offer was made by staff of listed Habubank, despite the State Bank’s 14 per cent, per year mobilisation cap.

Nguyen Hoa Binh, head of Vietcombank’s board of directors, said some banks were still offering deposit rates higher than 14 per cent, per year and “this hurts lenders not breaching  the rules like Vietcombank.”

Nguyen Thanh Toai, deputy general director at Asia Commercial Bank, confirmed that the bank did not offer deposit rates higher than 14 per cent, but suggested the cap be reconsidered.

“Different banks have different capital needs and thus, they should offer different deposit rates. Moreover, in the context of ramping inflation, 14 per cent per year is not attractive enough to depositors,” said Toai.

April’s nationwide consumer price index (CPI) came in at 3.32 per cent month-on-month, driving the year-on-year figure to 17.5 per cent, the highest increase since December, 2008.

“The fact that some banks hiking deposit rates higher than the cap demonstrated their dearth of capital,” said Toai.

In a continued attempt to shrink the money supply, on April 29, with the Decision No. 929//QD-NHNN, the State Bank decided to raise refinancing and overnight lending rates by 1 per cent to 14 per cent, repeating a similar move in March, 2011. Accordingly, the State Bank decided to lift the seven-day lending rate to local banks via the open market operations window from 13 to 14 per cent, per year.

Nguyen Dai Lai, vice head of Credit Information Centre, said that market interest rate was likely to stay high until the third quarter when inflation pressures ease.

On the interbank market, where local lenders borrow each other short-term funds, the common overnight borrowing rate was quoted within 20-22 per cent, per year during April, from its average level of 19-21 per cent, per year in March.

Normally, the raising interbank borrowing rate represents a tighter liquidity situation within the banking system.

According to analysts from Viet Capital Securities Joint Stock Company, from the tighter monetary conditions seen in April compared to March, the State Bank might have gradually been withdrawing money from the system.

During the month, the authority increased the reserve requirement ratio for US dollars from 4 to 6 per cent of total deposits in an effort to lower USD-denominated credit growth. The authority has not yet increased the reserve requirement ratio for local currency deposits.