Banks hike long-term rates

Banks hike long-term rates

Small banks have raised interest rates on medium- and long-term deposits following a State Bank of Viet Nam decision to float these rates beginning June 11 to lure more long-term capital. However, new savings inflows remain limited at these banks.

Meanwhile, the State Bank has lowered the ceiling interest rate for short-term dong deposits of 12 months or less to 9 per cent per year.

Since June 11, Western Bank has increased the interest it offers on medium- and long-term deposits to 14 per cent per year, but they reduced it back to 12.5 per cent after a week.

Dau tu (Viet Nam Investment Review) has reported a similar situation at several other banks, including Kien Long Bank, Navibank and SeABank, noting that small banks were struggling to ensure liquidity.

An executive from one of these smaller banks said they were reluctant to raise rates for fear of losing existing depositors, noting that savings would flow into larger banks once a general ceiling interest rate was re-established. In practice, he said, customers preferred larger banks to save money long term, especially at a time when the central bank was restructuring the banking sector.

HCM City Economics University vice rector Tran Hoang Ngan told Dau tu that interest rates were likely to become more stable after the State Bank dealt with weak banks, predicting deposit rates would be uncapped "at a suitable time".

He said that, once the ceiling rate was removed, banks which maintained high deposit interest rates would be specially supervised by the central bank, since pushing up deposit rates was a red flag that a bank was facing difficulties in ensuring liquidity.

National Advisory Council on Monetary and Financial Policies member Le Xuan Nghia said the State Bank had finished the first phase of the banking system restructuring process by targeting fragile banks for merger or liquidation.

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