April 2, commercial banks begin fulfilling their commitments to cut interest rates to 11% per annum on VND and 6% on US$ deposits. However, the monetary market remains hot.
Some analysts still have doubts about the feasibility of the agreement on slashing interest rates. In fact, members of the Vietnam Banking Association (VNBA) many times reached agreements before on applying ceiling interest rates, but they then broke the commitments to compete with each other in mobilising capital.
However, the situation seems to be different now. State owned banks all have informed their branches to slash the ceiling VND interest rate to 11% and US$ rate to 6%, commencing April 2.
By late yesterday, half of the joint stock banks in Hanoi and HCM City had released decisions on lowering the interest rates as of April 2. Meanwhile, other banks said they still needed to listen for the news about the situation. The banks fear that if they cut interest rates but other banks do not, capital will flow into the banks that offer higher interest rates.
However, the chairman of a Hanoi-based joint stock bank acknowledged that banks should slash interest rates for their own benefit. The current overly high interest rates have been putting heavy burdens on banks.
When asked if the interest rate cuts would influence the positive real interest rate policy, Duong Thu Huong, Secretary General of VNBA, said as the situation remains complicated, the positive real interest rate policy will only be reached in the long term.
Huong said that despite the interest rate cuts, capital will keep inflowing into banks as bank deposits remain the safest investment channel.
It is now the right time for banks to cut interest rates as short-term capital is profuse. The Prime Minister has instructed the State Bank to lend to commercial banks at 9% per annum if banks have problems in liquidity and cannot borrow money from other channels at 9% per annum.
It is expected that capital will be mobilised as usual after banks cut interest rates. VNBA said that in the immediate time, the interest rates of 11% and 6% will be applied in April. After that, VNBA will consider the situation to decide whether to keep the rates unchanged or adjust them again.
US$ deposit interest rates soar at last minute
Commercial banks still tried to raise US$ deposit interest rates in the days just before April 2.
On March 24, one week before April 2, when the agreement among VNBA members came into effect, Eximbank raised its US$ interest rates. The bank, one of the biggest payment service providers and foreign currency traders, tried to offer the most attractive interest rates.
Eximbank’s US$ interest rates rose by 0.2-0.3% per annum on all term deposits. Moreover, those who deposited more than $5,000 could enjoy bonus interest rates.
However, Eximbank’s interest rates were not the highest on the market. Prior to that, the market heard the information that SeABank was mobilising US$ capital at 6.9% per annum. In addition, US$ depositors at the bank could get gold as a gift for depositing money.
On March 27, VP Bank announced it would raise its US$ deposit interest rates. It offered 6% per annum on 1-month, 6.5% on 3-month, and 7% on 6-month term deposits. This was the second time VP Bank had raised the US$ interest rate within a month.
Explaining the interest rate increases, Le Dac Son, General Director of VP Bank, said that the number of clients who have the demand for US$ loans is increasing, especially the importers who need capital to make payments for imports.
Deposit interest rates down, but lending interest rates remain high
Bankers all say that though they have cut deposit interest rates, they will not lower lending interest rates immediately.
As banks had to mobilise capital at high interest rates, they will lend at high interest rates in order to ensure profit. It is expected that the lending interest rates will not be adjusted for another month.
Analysts also believe that lending interest rates will not go down in the near future for many reasons.
The government has instructed state owned banks to transfer VND52,000bil of the state’s money deposited in the banks to State Bank of Vietnam branches for management. This will cause a shortage of VND capital for banks.
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