Sudden changes in banks' interest rate

Despite the negotiated interest rate of term deposit was defined at the ceiling level of 12% per annum, capital mobilisation still have slowed down. Many banks hiked the demand deposit rate from 3.6-4.8% up to 9-10% per annum. The monetary market appeared sudden changes as the demand deposit rate now nearly equals to term deposit rate.

Yesterday Eximbank launched the 24h overnight saving product with the interest rate of 10% per annum meaning 0.883% a month. Earlier, Saigon Commercial Bank (SCB) also raised the demand deposit rate in dong to 9% per annum. An unofficial source said that Citibank's demand deposit rate was also increased to 12% per annum. The situation showed transparency loss of banks that are short of capital.

Dao Hong Chau, Eximbank's deputy general director said that his bank is not short of capital but there should be to have a better capital mobilisation plan to meet the borrowing demand.

Meanwhile, according to SCB's general director Pham Anh Dung, the interbank interest rate now climbs to 20% pa and the open market's rate also stands at 12% pa. His bank decided to hike demand deposit rate to 9% pa after careful calculation, balance of capital supply and demand, negotiations about lending rate with over 90% of customer numbers. With this, SCB can raise capital from institutions and residents more easily with a lower interest rate than the interbank and open markets. Dung confirmed again that SCB does not lose transparency. Currently, SCB has a deposit balance of nearly two trillion dong at State Bank of Vietnam.

Although demand deposits account for a much high ratio of total deposits, banks still are forced to launch measures to attract capital from residents. Some institutional customers withdrew bank deposits to re-lend residents with a higher interest rate.

According to SeABank's deputy general director Nguyen Manh Quan, if doubling the demand deposit rate, his bank cannot stand because of too high cost although the high deposit rate can hold customers. However, this is not the optimal solution.

A specialist from HCM City Economics University gave his opinion that banks that hiked demand deposit rate equalling to term deposit rate are showing instability in transparency. To solve the problem, it is needed to have a suitable macro policy. State Bank of Vietnam should be advised by financiers from Asian nations that underwent financial crisis in 1997.

Banks are facing many risks, given statement in the conference titled "Vietnam banking system and WTO commitments" held in Hanoi by SBV. Lending activities make up 70-90% of total credit asset and a corresponding ratio in total profit of the whole banking system. Potential risks in the banking operation are in the upward trend while the bad debt ratio remains high and tends to increase.

Due to over-concentration on short-term targets, many banks forgot long-term management measures and did not pay attention to affects of macro economy to the banking sector. (NLD)