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Savers to reap reward from central bank decision   2008-05-19 - Bloomberg

Banks are set to offer higher interest on deposits after the central bank announced it would scrap the interest rate cap  
Lenders were quick to respond to the central bank’s decision to scrap a cap on deposit interest rates, lifting interest rates on deposits as high as 14.3 percent.



Banks began Sunday racing to raise deposit interest rates after the central bank’s decided to lift a 12 percent deposit interest rate cap.

The State Bank of Vietnam announced Saturday it was scrapping the cap, allowing commercial banks to set interest rates on both loans and deposits at up to 150 percent of the benchmark rate.

The central bank’s official interest rate will rise to 12 percent on May 19, from 8.75 percent now.


“The central bank’s move should help to ensure that banks have the mechanism available to them to mobilize more deposits,” Dragon Capital Director Dominic Scriven told Bloomberg.

“That will help financial stability.”

The 12 percent cap on deposit rates before the rate rise has meant that real interest rates have been negative because of inflation, Scriven said.

The real interest rates are returns paid on savings in excess of the inflation rate.

This will give banks scope to offer deposit interest rates as high as 18 percent.

The central bank’s Saturday announcements sent bank directors scurrying to hold board meetings Sunday to determine what interest rates they will offer their customers.

From today, the state-run Bank for Investment and Development of Vietnam, known as BIDV, will offer an annual 13.5 percent interest rate on term deposits of between six and 12 months.

BIDV board chairman Tran Bac Ha said term deposits of less than six months would attract interest of 13.3 percent a year, while term deposits of more than 12 months would accrue 13 percent a year.

Bank for Foreign Trade of Vietnam, known as Vietcombank, announced it would offer 12.5 percent a year on one-month term deposits, 12.75 percent a year on two-month term deposits and 13 percent on three-month term deposits.

Deposits of between six months and nine months will be offered 13.5 percent per year while

Vietcombank’s one-year term deposit interest rate will be 14 percent per year.

Vietcombank said only branches in areas where demand for credit was high would be able to offer the new rates.

Of the five largest private banks by assets, Asia Commercial Joint Stock Bank said its new annual interest rate on one-year deposits would be 14 percent.

It also said it would raise the interest rate on deposits worth VND5 billion (US$311,322) or more, but the net deposit interest rate would not exceed 14.3 percent per year.

Among medium-sized banks, Ocean Bank also said it would pay 13.5 percent per year on term deposits of between one month and three months and 14 percent to term deposits of between six months and 13 months.

But some banks remained cautious about raising deposit interest rates.

Global Petro Commercial Joint Stock Bank General Director Nguyen Tuan Tu told Thanh Nien the bank’s managing board would adjust the deposit rate today after examining how other banks had reacted to the central bank announcement.

Tu said his bank, known as GP Bank, also wanted to wait for the market reaction to the central bank’s move.

An Binh Bank General Director Nguyen Duc Khanh said his bank also wanted to move slowly.

“We will wait for one to two days,” he said.

“We will not participate in the race to increase the deposit interest rate.”

Most other banks contacted by Thanh Nien said they would make a decision on interest rates today.

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