Banks raise rates after central bank removes cap

Monday, May 19, 2008
Banks boosted interest rates on Monday after the central bank abolished a 12-percent ceiling rate on dong deposits and raised three interest rates over the weekend to fight double-digit inflation.

The cap was imposed in February to stabilise the market after banks started bidding aggressively for deposits following a series of monetary tightening measures by the central bank.

On Monday, state-run BIDV, Viet Nam's second-largest bank by assets, started offering new rates on dong deposits, paying up to 13.5% for dong savings of between six and 12 months, from 12% earlier.

The Hanoi-based BIDV said it also offered dong loans at 16.5% to 18% per year, from 13% on its one-year loan offered on the interbank markets last Friday VNIBOR.

Other banks, such as Ho Chi Minh City-based Sacombank (coded STB), followed suit with offers of higher rates.

In abolishing the cap on deposits, the central bank said commercial banks can fix their own rates on dong deposits and lending at up to 150% of a base rate of 12 percent. Previously, a base rate of 8.75% had been applied to lending only.

The central bank also raised its refinancing rate on loans to commercial banks to 13% from 7.5% and its discount rate to 11% from 6%. The changes were effective Monday.

Annual inflation has jumped in Viet Nam to more than 20% and the central bank has carried out a number of measures to tighten liquidity to try to stem the rise in prices. (Reuters)