Ha Noi (VNA) – The deposit interest war among commercial banks continues to heat up, with banks now offering annual interest rates on dong deposits of up to 10.8 per cent and no end in sight.

The Saigon Joint Stock Commercial Bank on February 20 raised annual interest rates to 10.56 per cent on a 12-month term deposit on Viet Nam dong, the bank’s fourth increase in the past 20 days. VP Bank continues to offer the 10.5 per cent rate it instituted on February 18. One day later, SeABank responded to VP Bank move by offering the 10.68 per cent on 12-month term deposits and 10.8 per cent on 13-month deposits.

Nam A Bank, Techcombank, and Habubank are all offering rates in excess of 10 per cent and are offering other incentives to attract short term deposits.

Dr Vo Tri Thanh, senior economist with the Central Institute for Economic management, has dismissed concerns over the interest war.

“Current rates are normal,” Thanh told English-language Viet Nam News daily in a phone interview on February 20. “Consumers would not save their money in banks if rates are lower than inflation.”

“Banks complain that the interest rate war will affect their profitability,” said Asia Commercial Bank deputy director Nguyen Thanh Toai. “But I approve of the various moves by the central bank to tighten the money supply for the long-term sake of the system.”

The moves have included imposing higher compulsory reserves on commercial banks to get them to soak up excess liquidity, and tightening lending rules on loan against securities and real estate, as well as raising key interest rates to tighten credit generally.

Toai confirmed that high inflation was a major challenge to the State Bank. This year, the Central Bank was determined to use every measure to tackle inflation and ensure stable economic development.

The decision to increase compulsory reserves has channeled trillions of VND from commercial banks into stocks. Commercial banks must also buy 20.3 trillion VND (1.72 billion USD) in treasury bills, tying up available capital and leaving them hungry for deposits.

ACB and VIB Bank reported them would raise interest rates further. An executive of a Ha Noi-based commercial bank yesterday refused an interview with Viet Nam News, saying the bank was meeting to discuss plans to increase interest rates.

But higher deposit rates would come with a cost, warned Toai.

“Higher deposit interest rates lead to higher lending interest rates,” Toai said.
As an indication of things to come, inter-bank rates charged on overnight loans have already spiked, said a representative of Ocean Bank who asked not to be named. Some small banks still have accepted the high rates, because they lack ready fund to cover payments.

“Banks which accept such overnight loans must face serious payment problems,” said Toai.-Enditem