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Banks fear ceiling interest rate may be lowered further   2011-12-02 - Tien phong

While commercial banks are still struggling to deal with the liquidity problem, they have heard that the State Bank may lower the ceiling deposit interest rate further. The information has put them on the tenterhooks.

Central bank strives to ease lending interest rates

Tien phong has quoted its source as saying the State Bank is considering lowering the ceiling deposit interest rate to 12 percent from the current 14 percent as a preparation step for the implementing of the monetary policies for 2012.

A banker, a member of the G12 group (the group of the most Vietnamese powerful banks), and an official of the Vietnam Banking Association (VNBA) both declined to give comments on the information. Meanwhile, Nguyen Duc Huong, Deputy Chair of Lien Viet Post Bank, said that this is very likely to happen.

“Governor of the State Bank of Vietnam once stated that once the inflation rate in November is lower than one percent, there would be the good conditions for considering lowering the ceiling interest rate as a solution to decrease the lending interest rates,” Huong said.

Banks worried stiff about liquidity

According to the State Bank of Vietnam, the total deposit balance at credit institutions in October 2011 dropped by 0.74 percent from September, while the total balance of deposits in September decreased by 1.07 percent in comparison with August. The dong deposits have decreased most sharply. The total dong mobilized capital has increased only by 8.59 percent in comparison with late last year, the lowest increase in the last 10 years.

“It is now not the right time for the central bank to lower the interest rate. A lot of people have withdrawn their deposits from banks because they fear the bank restructuring may lead to the dissolution of some banks,” said Dr of Economics Vu Dinh Anh.

“If the interest rate is forced down further to unreasonable levels, people would have one more reason to withdraw deposits, which would lead to the so called “banking run,” he warned.

“If the cash flowing out of the banks is bigger than the inflows, it would be more difficult for the State Bank to regulate the monetary policies,” he added.

A director of a BIDV bank branch in Hanoi said that the deposit at the branch was only 50 billion dong in the last three months. “Depositors would rather withdraw capital to deposit in gold. We have been told to mobilize 220 billion dong in capital this year, and we have only one more month to fulfill the task, while we have mobilized only 80 percent of the sum. It is clear that we will not be able to do this,” he said.

Deputy General Director of a big joint stock bank in Hanoi has confirmed that the deposits have been decreasing sharply over the last two weeks. He said that the volume of money withdrawn from the branch was 30-50 billion dong some days, while the inflows have been lower than the outflows.

Especially, November is the high season of making payment, therefore, commercial banks are under the hard pressure when depositors withdraw their money. Some bankers have expressed their worries that the capital to be mobilized in the last months of the year may decrease, because people now prefer keeping gold than dong.

Besides, it is expected that businesses would withdraw more money to pay salaries and bonuses and buy goods for Tet sale season, which would make the liquidity problem more serious.

According to the State Bank of Vietnam, on November 14-18, the bank pumped the net amount of 3626 billion dong through the OMO (open market operation) (it provided 30,972 billion dong and collected 27,346 billion dong). The figures show that the demand for dong for payment remains very high.

The manager of a bank said that the even the current 14 percent interest rate is not high enough to attract deposits, let alone the 12 percent, predicting that banks will not be able to seek capital, because idle money will be injected in gold or real estate.

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