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Banks set for new deposit interest war   2008-01-29 - VNS

Caught by a new State Bank decision requiring them to increase capital reserves, along with a strong demand for Vietnamese dong by consumers ahead of the Tet (Lunar New Year) shopping season, commercial banks may be once again about to ignite a deposit interest war.


Vietcombank staff receive deposits. Commercial banks are expected to hike deposit interest rates in a move to attract customers. — VNS Photo Viet Thanh

HA NOI — Caught by a new State Bank decision requiring them to increase capital reserves, along with a strong demand for Vietnamese dong by consumers ahead of the Tet (Lunar New Year) shopping season, commercial banks may be once again about to ignite a deposit interest war.

To slow the flow of money in circulation, control credit growth, and manage risk, State Bank Decision No 187/2008/QD-NHNN has mandated that commercial banks increase their reserve ratios.

In response to last year’s battle among commercial banks to attract savings depositors, it also has put a cap on the rate of interest the banks could offer on dong deposits.

But, the need to stash higher capital reserves has also increase the pressure on commercial banks to attract new depositors.

Dong A Bank has already raised the interest rate it offers on dong deposits by individual from 0.02 to 0.4 per cent, and as much as 0.66-0.75 per cent on term deposits.

An Binh Bank (ABBank) is offering interest rates on dong deposits higher by 0.06-0.48 per cent, paying 0.625-0.825 per cent per month on term deposits of one to 18 months.

Market leaders Sacombank, Techcombank, Asia Commercial Bank, VIB Bank, and SeABank were all offering 0.6 – 0.729 per cent per month on term deposits of up to 36 months.

"We have had to increase interest rates, to compete with other banks, and to prepare capital for committed projects," said Luu Duc Khanh, director of ABBank.

"In the near future, raising dong will become even more difficult because the central bank has already stemmed the flow of dong in circulation due to increasing inflationary pressures," said Viet A Bank deputy director Do Thieu Hoang.

"An increase in interest rates seems unavoidable over the next few months due to the real shortage of dong," affirmed the director of credit development for a Ha Noi-based State-owned bank who asked to remain anonymous.

Banks were also offering promotions to encourage large deposits in dong. ABBank gives a bonus of 0.264 per cent per year on large deposits. For instance, clients who deposit over VND2 billion (US$125,000) will be offered 24-month term interest rates of 10.344 per cent per year, instead of the normal rate of 10.08 per cent per year.

Five more commercial banks were recently licensed and are likely to further heat up the competition for customer deposits.

"They will come and they will try anything to attract our clients, especially with higher interest rates," said the deputy director of a HCM City commercial bank who declined to be named. "So, I think the interest war will be fiercer in the coming months."

Higher inflation also requires banks to raise interest rates in order to keep them sufficiently higher than the inflation rate in order for customers to choose to invest their savings in bank deposits.

"Gold and real estate have been competing for investor cash alongside bank deposits," said Asia Commercial Bank deputy director Nguyen Thanh Toai. "Clients don’t seem interested in the gains of banking services."

Nguyen Ngoc Bao, director of monetary policy for the State Bank said commercial banks "were told to increase compulsory reserves, so they should have reduced interest rates to lessen costs." Instead, they’ve pursued additional sources of capital.

"The end of the war over the dong liquidity of banks remains out of sight," Bao said.


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