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Oversupply, short demand forcing US$ interest rates down   2009-03-02 - DTCK

Commercial banks have slashed US$ deposit and lending interest rates as the demand has become weaker.


While commercial banks’ US$ capital has become more profuse after a period of intense mobilizing from the public, the demand for US$ loans has become weaker as businesses prefer borrowing VND loans under the 4% interest rate subsidy program.


Besides, experts have pointed out that the fluctuations of the VND/US$ exchange rates have made businesses hesitate to borrow in US$. They fear that the dollar price increases will put a heavy burden on them when they have to pay debts.


As a result, commercial banks have had to cut the US$ deposit interest rates.


In their latest move, Viet A Bank on February 25 announced the considerable cuts of US$ interest rates. The interest rate for demand deposits has been cut from 1.5% per annum to 1%, while the rate for three-month term deposit from 2.6% to 2.4%, and the rate for 6-month term deposits from 2.9% to 2.7%. The new interest rate is 2.9% instead of 3.0% for 9-month term deposit, while it is 3% now for 12-month term deposit.


Prior to that, Dai A Bank has also slashed the US$ deposit interest rate by 0.9% per annum on average. The bank’s offered US$ interest rate for 12-month term deposit is now at 3.1% per annum instead of 4% which was applied prior to February 13. This is also the highest US$ deposit interest rate being applied by Dai A Bank.


SCB, which has always been one of the banks that offers the highest interest rates for US$ deposits, also slashed the deposit interest rate on February 11. The highest interest rate now being offered by the bank is 3.1% per annum.


Eximbank’s highest deposit interest rate is now at 2.6% per annum, while ACB’s highest rate is 3.2% per annum, applied to 36-month term deposits.


Though US$ interest rates have been slashed drastically since the end of 2008, the total mobilized capital has been increasing on the dollar price increases on the black market. As the dollar price keeps rising, people prefer keeping dollars and making US$ deposits instead of VND.


According to the State Bank of Vietnam, the total deposit values at commercial banks by the end of January 2009 had increased by 0.18% over the previous month. Meanwhile, the VND deposits had decreased by 0.47%, while the foreign currency deposits had increased by 2.3%.


In HCM City, the city’s statistics office showed that the capital mobilized by the local banks by the end of January 2009 had reached VND568,800 billion, up by 16.4% over the same period of last year. Of this, the mobilized capital in foreign currencies amounted to 30% of the total mobilized capital, up by 37.9%, while the VND capital rose by only 9.1%.


While the US$ deposits are on the rise, the US$ credit growth is on the decrease as businesses do not want US$ loans at this moment for fear of exchange rate risks.


A representative from Ben Thanh Material Company said at the meeting with the State Bank of Vietnam on February 25 that the company now needs capital to import commodities, but it wants VND loans instead of US$ in order to avoid risks in exchange rate fluctuations. Meanwhile, according to the representative, banks only want to provide US$ loans.


The said representative also said that the company wants to pay debts to Eximbank before they mature in order to avoid risks possibly caused by the exchange rate fluctuation. However, in order to pay debts before they become mature, the company has to pay additional fees, which will put more difficulties for the company.


As such, businesses do not dare access US$ loans as they fear the exchange rate fluctuations. Meanwhile, export companies also hesitate to get VND loans under the 4% interest rate subsidy program (the actual interest rates they have to pay are just 0.9-1% per annum), because they have to commit to sell foreign currencies they earn to the banks at the exchange rates at the time of disbursement. In general, the companies do not want to sell foreign currencies to banks right after they get foreign currencies. They want to keep dollars for some more time and sell to banks only when the exchange rates move up.


Banks now have dollars in excess, but they cannot find borrowers. A senior official of the HCM City Branch of the central bank said that it is highly possible that the deposit US$ interest rates will be lowered in the time to come, as there has been an overly big gap between the supply and demand.

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