Interest rate policy putting bankers between hammer and anvil

Truong Van Phuoc, General Director of Eximbank, said that by raising deposit interest rates, banks well know that they are endangering themselves, but there simply is no alternative.

The State Bank of Vietnam on June 19 released Dispatch No 5455 instructing banks to stop collecting loan fees, asking borrowers to pay security on loans and employing other tactics which could indirectly lead to an increase of actual lending interest rates.

The dispatch proves to be bad news for bankers, who expect that banks will face more difficulties in the time to come.

The director of a joint stock bank said that bankers are now between the hammer and the anvil. They have to raise deposit interest rates in order to satisfy depositors in the context of high inflation and lower lending interest rates in order to satisfy the State Bank and businesses.

The director said that banks have to offer the deposit interest rate of 19% per annum, while they cannot lend at more than 21% per annum, which means the margin of profit of 2%, not enough to cover banks’ expenses.

That explains why some banks have stopped providing loans.

He said that banks have to offer high interest rates just to retain their current depositors; they have no hope of bringing in more money.

Truong Van Phuoc, General Director of Eximbank, said that by raising deposit interest rates, banks well know that they themselves are putting the knife to their throats. However, if they don’t do that, they will not be able to retain clients.

Banks continue to adjust interest rates on VND deposits. ACB is now offering 18.9% per annum for 13-month term deposits, a rate which has been applied since June 20. ABBank, once again, announced it would raise interest rates as of June 20, now offering 18.2% on 6-12 month term deposits. One day ago, VP Bank raised the rate to 18.8% for 6-month term deposits.

US$ deposit interest rates have also been increasing in the last few days. Since June 20, ABBank’s interest rates have been 7.3% per annum for 1-month, 7.5% for 6-month, 7.7% for 12-month and 8% for 13-month term deposits.

Ocean Bank is now leading the market with the offered interest rate of 8.4% for 12-month term deposits.

Other banks are also offering very high rates, including SCB 8%/annum, Eximbank 7%/annum, Dong A 7.65%/annum for 24-month term deposits.

Banks have to raise US$ deposits as people rushed to buy foreign currencies recently for fear of further dollar price increases. However, analysts fear that the move will worsen the current situation.

The move will unintentionally make the foreign currency speculation in the market more serious, especially as worries still exist about the further devaluation of the local currency. With such high US$ deposit interest rates, those who keep dollars will get double profit: they don’t need to worry about the currency value decrease, while they still can enjoy high interest. This will encourage more and more people to purchase dollars. As such, banks are now lending a hand to the activity of speculating foreign currencies and dollarisation.