Interest on dollar deposits rises

Interest on dollar deposits rises

Many commercial banks are violating the central bank's deposit interest-rate cap on the US dollar, according to independent market watchdogs.

Under the central bank's regulations, the ceiling on US dollar deposit interest-rates is limited at 2 per cent per annum.

However, some banks are offering interest rates of 4 per cent and even 4.5 per cent per annum for US-dollar deposits, particularly those with high value.

An official of a foreign bank in Viet Nam, who declined to be named, said the sharp increase in the dollar deposit interest-rate had not been caused by a liquidity problem at banks.

Since January, the central bank has been buying an additional US$1 billion to put in foreign-currency reserves so commercial banks would not be short of the US dollar.

Experts said the banks were offering higher rates than the central bank's cap in an effort to attract deposits to increase the volume of future credit activities.

For the first six months of the year, the banking sector's credit-growth rate reached only 0.76 per cent, while the target set for the year is between 8 per cent and 10 per cent by the year-end.

Thus, many commercial banks still want to attract more deposits to prepare for increasing credit activities in the coming months.

In the race to raise capital, some banks have chosen dollar deposits, considering them to be a better source to ensure liquidity.

Many banks said that the costs to raise capital by mobilising US dollar deposits was much cheaper than dong deposits, even if the dollar cap is broken. In addition, their liquidity remains ensured.

Deposits in dong raised in the last six months increased by 9 per cent, while loans in dong fell by 0.04 per cent compared with the figure last year.

In contrast, the US dollar mobilised in the same period this year dropped by 6.72 per cent, and US dollar loans rose by 0.6 per cent.

Because of this disparity, some banks are poised to continue to violate the central bank's US dollar interest rate cap to attract dollar depositors.

According to a report from the State Bank of Viet Nam's branch in HCM City, the liquidity of the entire city-based banking sector remains stable, but there is great demand for capital for credit and other payments from banks that are classified as weak.

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