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 VIETNAM Cutting interest rates for capital restructuring

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PostSubject: VIETNAM Cutting interest rates for capital restructuring   Tue Jun 19, 2012 2:31 pm

Cutting interest rates for capital restructuring

Interest rates for short-term deposits had remained high for a long time before being adjusted lower than those for medium- and long-term ones.

Economists say the adjustments are appropriate as both inflation and interest rates are following a downward trend. Against this background, it is expected that banks will be able to mobilize medium- and long-term deposits.

Interest rates continue falling?

Along with lowering the ceiling deposit interest rate by 2 percent to 9 percent, the State Bank of Vietnam has also decided to cut various managing rates of interest by 1 percent such as discount and refinancing rates to 9 percent and 11 percent, respectively. Open market operations (OMO) interest rates are also likely to drop to 10 percent from the current 11 percent.

Trinh Nguyen, an economist of the Hongkong-Shanghai Banking Corporation, says it seems a bit hasty but necessary to slash interest rates to 9 percent at present.

There is hope that inflation will fall to below 5 percent in October.

Although the 2 percent reduction in deposit rates is part of the Government’s effort to help businesses, lending rates remain very high at 15-17 percent per year, which makes it difficult for them to access capital resources, she notes.

“With inflation pressure easing off on account of low demand and falling prices of oil and petrol, we predict that the SBV will continue cutting OMO interest rates by another 2 percent,” Trinh says.

In a recent strategic report released by the Bao Viet Securities Company (BVSC), their experts also estimated Vietnam’s inflation rate at around 8-9 percent in 2012.

This will be a favourable condition for the SBV to persist in loosening monetary policies in support of economic growth and lower interest rates, they said, adding that the SBV will consider continue lowering interest rates but ensuring real positive interest rates for depositors.

Opportunities for capital restructuring

In response to the SBV’s decision, many commercial banks have raised deposit rates for the above-12-month term to 10-12 percent while maintaining those for the one-to-12-month term at 9 percent.

Asia Commercial Bank is offering depositors 10.4-12 percent for their 12-36-month term, much higher than the current rates of 9 percent, while Saigon Commercial Bank is paying depositors 11-12 percent per year to their 13-36-month deposits.

Major banks such as the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and the Bank for Investment and Development of Vietnam (BIDV) are also offering 9.5-10 percent to their long-term depositors.

Deputy Director of a major commercial bank in HCM City attributes the adjustments to banks’ concerns that the medium- and long-term deposit rates will be likely to increase in the future if the inflation comes back.

This move will also help banks increase their medium- and long-term deposits and avoid unnecessary competitions, he says.

Economist Nguyen Thi Mui, director of the human resource training and development school of the Vietnam Joint Stock Commercial Bank for Industry and Trade, says the adjustments are in line with the current macroeconomic trend.

As commercial banks have to use 30-40 percent of short-term deposits to provide medium- and long-term loans, she argues, they would rather raise interest rates for medium- and long-term depositors.


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