Banks increase interest rates under new mechanism

Monday, May 19, 2008
The two days for northern banks and one day for southern banks to prepare for the new interest rate mechanism following the meeting of the State Bank of Viet Nam was very short. As of this morning (May 19), many banks have applied new interest rates.

Besides state-owned commercial banks, the Bank for Investment and Development of Viet Nam (BIDV), which began preparations early and consulted SBV experts, small banks are the first to announce new interest rates, which are all at the highest levels. According to banking experts, the interest rates applied by BIDV will be the reference level for other banks.

In the afternoon on May 17, right after the SBV’s meeting in the north, OceanBank announced its new interest rates, applied as of May 19, with the highest rate of 14%/year.

Another joint stock company, Sacombank, immediately raised the rate on 6-month deposits in VND to 14%/year and 13.5 to 13.8%/year for deposits of less than 6 months.

DongA Bank announced the interest rate of 13.8% for 1-6 month deposits, 14%/year for 7-12 month deposits and 14.4% for 25 month deposits. The bank is applying the interest rate of 1.5%/month on average on loans.

While other banks haven’t released their new interest rates yet, they say they will make decisions in the next 1-2 days. The common rate will stand at 13% at the lowest and 15% at the highest levels, banks say.

However, specialists say the 15% rate will be rare because the State Bank of Vietnam restricts the loaning rate at 18%. If banks apply rates for deposits that are too high, they will suffer losses.

There is no feedback from businesses about the impacts of the new mechanism. However, many businesses hope that it will be easier for them to borrow capital from banks.

However, as many banks say they will apply the ceiling rate on loans, 18%, plus other conditions, it will not be especially easy for businesses to access bank money.

Cao Sy Kiem, a member of the Financial and Monetary Advisory Council, said that it would be difficult for a new interest rate race to kick off. He also warned that there will be some banks suffering losses. Newly transformed, newly established banks and those that are weak at management will face difficulties. They will have to adjust themselves to avoid floundering. Dissolution and merging may happen. (VNN)