Commercial bank reserve ratios increased

17/01/2008 -- 3:08 PM

Ha Noi (VNMA) – The State Bank of Viet Nam on January 16 increased the compulsory reserve ratio, the amount of money commercial banks are required to hold in reserve, in an effort to slow the flow of money in circulation and control credit growth. The reserves that banks are required to maintain against dong deposits was increased from 10 percent to 11 percent of total deposits on non-term accounts and term deposits of more than 12 months. The reserve ratio was increased from 4 to 5 percent on term deposits of more than 12 months. On non-term foreign currency deposits and term deposits of less than 12 months, the reserve requirement rose from 10 percent to 11 percent. Reserve ratios were increased from 4 to 5 percent on term deposits of more than 12 months. Decision No. 187/2008/QDNHNN will take effect in February, giving credit institutions two weeks to prepare. The move follows January 15 decision to buy up US dollars and will ensure that some of the additional dong liquidity that would result from January move remains in commercial bank coffers and doesn’t add to already strong inflationary pressures by circulating more widely in the economy. In the recent US dollar buy back, the State Bank was estimated to have bought up 30 million USD. At current exchange rates, this would pump an additional 483 billion VND into circulation. Increasing the compulsory reserves requirement, however, puts the heat on commercial banks to raise additional capital. Last year, the State Bank doubled the ratio from 5 to 10 percent. This set off a deposit interest rate war among banks, each of which raced to offer higher interest on dong deposits to attract capital. A number of managers of leading commercial banks denied this would happen again and vowed to maintain current interest rates.-Enditem
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