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Banks draw capital to meet surging demand   2009-03-12 - VietNamNet/SGT

Most commercial banks are now busy with plans to draw more capital to meet surging demands, with several lenders either hiking interest rates to attract depositors or issuing certificates of deposit or convertible bonds.

Bank for Foreign Trade of Vietnam, or Vietcombank, on Tuesday began issuing certificates of deposit in Vietnam dong with three-month and six-month terms carrying annual coupons of 7.42% and 7.62% respectively.

Bank for Foreign Trade of Vietnam, or Vietcombank, on Tuesday began issuing certificates of deposit in Vietnam dong with three-month and six-month terms carrying annual coupons of 7.42% and 7.62% respectively. This is slightly higher than the bank’s normal savings rates at between 7.3% and 7.5% per year for similar terms.

Apart from attracting public funds, the bank also targets corporate depositors, saying those depositing big sums at the bank can enjoy higher rates and be given priority when borrowing money.

Days earlier, Bank for Investment and Development of Vietnam (BIDV) has since March 5 also issued certificates of deposit in both Vietnam dong and the U.S. dollar with medium terms of one, two, three, and five years at higher rates than its normal saving rates. The central bank has permitted BIDV to issue VND9 trillion worth of long-term valuable papers this year.

Meanwhile, Saigon Thuong Tin Commercial Bank, or Sacombank, is seeking to issue convertible bonds having a term of two years within 2009 to ensure stable medium-term capital source.

The bond will carry a coupon 150-200 basis points higher than the Government bond’s. The expected mobilization via convertible bonds is 40% of the bank’s chartered capital at the time of issuance, but the bank will have to obtain approval from shareholders at a general meeting next Monday.

Smaller banks are not sidelined in the race though.

Vietnam Bank for Private Enterprises (VPBank) has since February 20 increased interest rates for deposits of all terms with the smallest rise of 15 basis points on three and four-month terms and the biggest rise of 100 basis points for the three-year term. The bank’s interest rates now range from 6.8% to 7.8% per year with the highest rate of 7.8% for the 36-month term.

Nguyen Thanh Binh, deputy general director of the bank, has earlier said that VPBank increased borrowing rates to prepare capital source to meet enterprises’ demand in the coming time, which is expected to increase strongly owing to a stimulant program by the Government to offer subsidized lending. VPBank is expected to set aside VND6 trillion for the subsidized lending program this year.

Other banks such as Southeast Asia Commercial Bank, Ocean Bank, and Orient Commercial Bank have also followed suit, hiking borrowing rates for deposits longer than six months.

Vo Van Chau, CEO of Orient Commercial Bank (OCB) said that his bank had to increase interest rates for longer terms to meet increasing capital demand for manufacturing and consumption.

Bankers attributed stronger demands for funds from corporate clients to the Government’s stimulus program. After two weeks or so kick-starting the program, over VND113 trillion, or some US$6.4 billion, worth of soft loans has been disbursed for enterprises, who pay low borrowing rates as the Government bears four percentage points in commercial rates.

Dang Van Thanh, chairman of Sacombank, said that the increasing demand for capital was a good sign for the economy. He however called on enterprises to take prudent consideration in using funds, and forecasted credits would strongly rise in the third quarter this year.

Explaining on the surging demand, Chau of OCB said now was the time for beginning a business cycle.

“This time is the beginning of the business cycle for enterprises who start borrowing money to buy materials so the capital demand including medium- and long-term funds for investing in equipment has strongly increased. In addition, after the central bank permitted lenders to make consumer’s loans at negotiated rate, many banks have stepped up mobilization to make loans for this segment,” he added.

By the end of February, mobilization of the banking system increased 0.44% from late last year. Meanwhile, total outstanding loans increased 0.54% from late last year, of which loans in Vietnam dong rose 1.35% and loans in the U.S. dollar fell 2.69%.

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