Viet Nam to raise dong deposit rate cap to 12 pct

Monday, April 28, 2008
Commercial banks in Viet Nam will raise the ceiling rate on dong deposits with a maturity of six months or longer to 12% from 11%, effective Tuesday, the Viet Nam Banks Association said on Monday, a move that should help smaller lenders.

The ceiling for interest on deposits of less than six months will be raised to 11.5 percent from 11 percent, the association said in a statement, citing agreements by commercial banks at meetings in Hanoi and Ho Chi Minh City last week.

It said banks should have plans to implement the rates as agreed among members of the association "in order to stabilise the market's interest rate level, to limit funds being shifted from one bank to another".

The authorities are apparently worried that smaller banks may have trouble attracting deposits, which would lead to liquidity problems at a time when demand for loans remains strong and might prompt the need for central bank aid.

The cap was imposed as a way of stopping money being moved between accounts as banks outbid each other for deposits, a practice that was working against official efforts to tighten liquidity to fight inflation.

Annual inflation in April jumped to 21.42%, the sixth consecutive month of double-digit price rises.

The association said in its statement that the higher deposit rate should help protect depositors against rising inflation.

The central bank said last week that apart from injecting cash via open market operations, it would step up lending, especially to smaller banks, to boost their liquidity.

Viet Nam could ease its restrictions in the next few months. (Reuters)