Vietnam - Higher deposit rates offered on liquidity fears

October 4, 2011


Higher deposit rates offered on liquidity fears


Some local commercial banks, especially small ones, are continuing to offer customers deposit interest rates higher than the cap of 14% per annum over liquidity concerns.




A customer a few days ago informed a small bank in HCMC that he wanted to withdraw VND1 billion and was questioned by staff about the decision.


When he arrived at the bank’s branch the following day to withdraw the money, an accountant approached him with a 16% rate offer for his one-month deposit.


The customer agreed not to withdraw the money from the bank after signing several papers and receiving upfront cash equivalent to two percentage points. The accountant just put the 14% rate on his certificate of deposit.


According to a high-ranking officer of the bank, small lenders are facing huge pressure from falling liquidity as money is flowing out quickly on lower deposit rates. They have to choose either punishment from the central bank against illegal deposit rate hikes or poor liquidity if customers keep taking back money.


The central bank has in recent days pumped small funds through the open market and each lender has received just a modest amount of it. However, not all banks have been able to access the capital as they have no government bonds that can be used to mortgage loans, the bank officer said.


Besides, the loans have short terms at one month maximum while mobilization rates on the inter-bank market stay at 14.5% to 16%. Small banks may find it hard to get good interest rates, he said.


Most local banks have yet to find solutions for capital mobilization after the central bank issued Circular 30 to cap interest rates on dong deposits that are non-term and those less than a month at 6% last week.


The head of a bank’s individual customer department has since last week come to the transaction counter to monitor cash withdrawals by customers and even reach depositors who intended to take away their cash.


“This has never happened before and staff at all the bank’s branches are assigned to seek new customers whilst keeping current ones,” a staff member of the bank said.


Other lenders like Orient and Viet A have also launched promotion programs to give lucky draws or valuable gifts to lure new customers.


Dam The Thai, deputy director of HCMC Development Bank (HDBank), said low deposit rates have made customers shift to more attractive channels like gold and the stock market. The bank is trying to improve customer services like quick and convenient transactions via telephone, the Internet or at customers’ homes.


To help improve liquidity in small banks, a financial expert said the central bank should raise compulsory reserve ratios and pay the interest for the money kept at the central bank.


The central bank then will use the money to increase loans via the open market and recapitalize small lenders.



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