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Interest cap prompts rate war

Update: June, 14/2012 - 10:57


An employee at Maritime Bank checks cash. After the deposit rate was capped, banks claimed it became difficult to retain depositors. — VNA/VNS Photo Tran Viet
HCM CITY — Following the sharp cut in the deposit interest rate ceiling to 9 per cent, a fierce battle has broke out between banks to retain deposits, with many illegally offering higher rates.

The State Bank of Viet Nam reduced the cap from 11 per cent with effect from June 11 in an attempt to bring down loan interest rates and spur economic growth, which is forecast to plummet to levels not seen in more than a decade.

But independent analysts said the central bank's move has become a hurdle to banks'efforts to retain existing depositors and attract new ones.

Since the rate was cut, many people have been withdrawing their money from banks and investing in other asset classes like property and foreign currency, they said.

Small banks are facing particular difficulty. Consequently, many lenders have been breaching the rate cap.

Some small banks are offering 11 to 12 per cent for deposits of VND1 billion (US$47,000) or more.

Others are offering gifts and cash incentives.

For example, some banks ostensibly offer 9 per cent as regulated, but pay the difference between that rate and higher rates up front.

Some banks also offer attractive interest rates on non-term deposits. Sai Gon Commercial Joint Stock Bank, for instance, offers 3 per cent per annum while the normal rate is less than 2 per cent.

A few months ago, when the savings interest rate was capped at 11 per cent, many banks had offered 14 and 15 per cent. Some were even punished severely by the central bank.

Dr Cao Sy Kiem, a member of the National Advisory Council for Financial and Monetary Policies, stressed the need for cracking down on this illegal practice.

The central bank's drastic cut in interest rates would greatly benefit businesses and the economy by providing access to cheap funds and spurring growth, he added.

Analysts pointed out that banks' willingness to top the central bank's cap proved that their liquidity, particularly in the case of small ones, remains volatile.

This means the interest rate is only likely to stabilise after nine weak banks identified by the central bank are restructured. — VNS

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