Nhan Dan Online – At the end of the year, the capital demand of all of the economic sectors is very big. For commercial banks, apart from the preparation for capital source to meet the above-said demand, the Government’s moves towards the second economic stimulus package has put the banks in the state of readiness. These factors have pushed the commercial banks to join the race of increasing interest rate.

A race to raise Interest rates in VND

Currently, according to the State Bank of Vietnam’s regulation, loan and mobilised interest rates ‘ceiling’ levels must not be over 10% a year. The characteristic of this race is the increase in interest rates for short-term deposits, specifically mobilised interest rates for the terms of one month, 2 months, 3 months, 6 months, 9 months and 12 months at the SEABANK bank are 9.6%, 9.75%, 9.9%, 9.75%, 9.54%, 9.6% respectively; at the Military Bank,  8.9%, 8.95%,  9.45%, 9.55%; the interest rate for one-month deposits at the Hang Hai Bank is 9.2%, at the Sai Gon Commercial Joint Stock Bank 9.99% and at the Dai A Commercial Joint Stock Bank 9.5%. Overnight loan interest rate is 6.49%.

That the State Bank of Vietnam announced that it will inspect the commercial banks with their mobilised interest rate of over 10% a year is ‘tacitly’ understood as a control of mobilised interest rate ceiling and the thirst for capital has been demonstrated through the fact that there are commercial banks listing their mobilised interest rate of 9.99% a year. According to the rough calculation, in the case that the capital mobilised interest rate is 9% and lending interest rate is 10.5%, the commercial banks are unlikely to get profit because for every VND 100 a bank mobilises, it is required to reserve VND 3 plus deposit insurance cost, payment reserve and operating cost and so on.

Interest rate in US$ also up

At present, interest rates for deposits in US$ are put at around 2.5% – 4.5% a year, for terms of one month, 2 months, 3 months, 6 months, 9 months and 12 months at the Sai Gon Commercial Joint Stock Bank are 2.5%, 2.8%, 3.1%, 3.3%, 3.4% and 3.5% respectively, at the Military Bank 2.1%, 2.15%, 2.45%, 2.7%, 2.8%, 3.15% and 3.5%.

The increase in US$ interest rate is attributed to the demand by the economic sectors for buying US$ to pay for imports. Trade deficit is estimated at around US$12.6 billion in 2009.

Until October 2009, the total outstanding deposits at the commercial banks increased by 25.72% compared to 2008, while the credit growth was 33.29%. This showed the difference between deposits and loans at credit institutions since early this year. The domestic credit reached VND 1.500 trillion (US$88 billion) with the exchange rate of VND 17,000/US$1 and the rate of bad debt was 2.46%.

The maintenance of the policy on controlling interest rate ceiling based on basic interest rate has helped the State Bank of Vietnam control the money flow in the economy, but caused no small difficulties to commercial banks, especially to small and medium-sized commercial banks, in mobilising deposits and giving loans, and to ensure their liquidity, the banks will have to buy and sell capital in the inter-bank market with overnight interest rate – the agreement is contrary to the Directive 01issued on May 22, 2009 by the Governor of the State Bank of Vietnam, and at the same time causes the increase in cost for commercial banks.

On the other hand, with the current policy on controlling interest rate, capital mobilisation through the issuance of the Government bonds this year will surely not gain a good result because the bond rates are not as attractive as other investment channels, and inflation is controlled to be under 7% this year, no priority will be given to the investment in bonds. The total mobilisation capital from the Government bonds in the 1991 – 2008 period was put at over US$300 million, the Government’s debt was around 44.6% of GDP.

According to the plan for 2009, the Government has to mobilise VND 126 trillion through the issuance of its bonds, but until the end of October 2009, the figure had only reached over VND 20.8 trillion. And to have enough money for economic stimulus packages, the Government will have to use ‘compulsory’ tools applied to the commercial banks to mobilise capital

And as a result, the two reasons: capital mobilisation to meet capital demand for the economy and implementation of the monetary policies in the ‘narrow space’ of the basic interest rate ceiling level of 7% will put the commercial banks in the fierce race of increasing interest rate from now to the end of the year.

Translated from Tong Quang’s article