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VietNamNews

City banks rethink rate cuts as deposits decline

Update: June, 06/2013 - 10:08

HCM CITY (VNS)— Money flow into several banks in HCM City has reduced significantly, prompting them to reconsider plans to reduce deposit interest rates so as to keep their customers, industry observers say.

The HCM City General Statistics Office says deposits by city residents were down 5 per cent in May over April.

An official with the State Bank of Viet Nam's branch in HCM City, who declined to be named, also said that city residents' deposits at 14 commercial banks reduced in May after some major banks decided to cut their deposit interest rates.

Banking experts say that although the central bank's deposit interest rate cap remains unchanged, some major commercial banks have cut their rates significantly so that they can further slash their lending interest rates and increase credit growth rates, helping troubled enterprises.

The reduction in deposit interest rates has made many people hesitate about keeping their savings with the banks.

Some banks saw a reduction in deposits despite keeping their interest rates unchanged because many people withdrew their money expecting it to go down further. They invested their savings instead in gold and securities.

"Banks should not lower their deposit interest rates in order to lower their lending interest rates whenever companies complain about borrowing costs. Capital mobilisation becomes difficult if the deposit interest rates are reduce to a very low level," said a senior official of a commercial bank in the city.

Economist Le Dang Doanh, former head of the Central Institute of Economic Management, also said that while lowering the deposit interest rates was necessary to reduce the lending rate, a too strong reduction in the former would push depositors to withdraw their funds and invest elsewhere.

A steep cut in deposit interest rates can also impact the foreign exchange rate if the Vietnamese dong were to depreciate further, he said.

To help enterprises settle their capital-related problems, banks can be proactive in reducing lending rates without resorting to lowering deposit interest rates, said Dr. Vu Viet Ngoan, chairman of the Financial Supervisory Committee.

Cao Sy Kiem, member of the National Monetary and Financial Policy Advisory Council, said that the current gap between lending and deposit interest rates was still large at 4-5 per cent, so the former could still be lowered by 1-2 per cent without reducing the latter. — VNS


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