State Bank keeps word on dong rates

Domestic banks are unmoved by the high inflation

The consumer price index (CPI) in January-April reached 5.4 per cent, already above this year’s target of 5 per cent and beyond estimates of domestic and international experts.
With the average interest rates for dong mobilisation currently at 7.2 per cent per annum, inflation has pushed the actual dong mobilisation rate to just 1.8 per cent per annum, even lower than the dollar mobilisation rate of 1.9 per cent.
“If the CPI continues its upward trend and if the dong interest rates does not increase accordingly, it is possibile that people will withdraw their dong deposits and move to dollar accounts instead,” said Nguyen Hoa Binh, Vietcombank deputy general director, the largest state-owned bank.
“This may create a temporary shortage of dong capital for the bank. However, for the time being, we do not see any urgent need to raise the rates because we still have a sufficient supply of dong and we can keep a tight control on dong lending.”
Le Dao Nguyen, deputy general director of Bank for Investment and Development of Vietnam (BIDV), shared Binh’s view, saying that although mobilisation of dong at his bank over the last four months had seen a slight decline compared to end of last year, BIDV was not planning to raise its rates.
The high inflation rates have not hurt joint-stock commercial banks either. Local funds have kept flowing into the Asia Commercial Bank (ACB) with the mobilisation rate estimated to have increased by 6 per cent so far this year.
ACB general director Pham Van Thiet confirmed that inflation had not led to depositors withdrawing dong or depositing less, while Vo Van Chau, general director of the small joint-stock Orient Commercial Bank (Oricombank), said the rising inflation did not seem to affect those with only small sums of idle money.
Commercial banks’ optimism has given the State Bank good reason to adhere to the promise it made last month not to increase its prime interest rate for dong mobilisation, currently at 0.625 per cent per month or 7.5 per cent per annum.
Nguyen Dong Tien, head of the State Bank’s monetary policy department, told Vietnam Investment Review that if the bank was to raise its interest rates, it would be very difficult for the country to meet the economic growth target of 7.5-8 per cent set by the government for the financial year 2004-2005.
However, he said the State Bank would keep a close eye on the situation and would introduce appropriate measures if necessary.