Banks fear rate cuts may drive depositors away

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Commercial banks have lowered interest rates on deposits as requested by the government, but they fear the move may lose them customers.

Several bankers were quoted in a report published by news website VnExpress Wednesday as saying they are worried about attracting deposits following the interest rate cuts.

"Once deposit rates are lowered to around 11 percent a year and all perks are withdrawn, clients will be reluctant and consider carefully about whether to deposit their money at banks," a general director of a bank in Ho Chi Minh City said.

Another banker who requested anonymity said it was necessary to cut deposit rates so that banks can lower lending rates and thus offer more loans. But he said

deposits were shrinking and rate cuts could even make them less attractive to clients. "There will certainly be a strain on money inflows at banks," he said.

The State Bank of Vietnam said earlier this month that commercial banks in the country should gradually lower their interest rates on dong deposits to 10.5 percent a year next month and 10 percent by September.

Nguyen Hoang Minh, deputy head of the central bank's HCMC branch, said most banks in the southern region have begun to lower their rates as requested.

Major lenders including Vietcombank and Asia Commercial Bank have brought their rates lower than the 10.5 percent level. Other banks now set their rates on dong deposits at around 11 percent a year.

Pham Quang Dung, deputy general director of Vietcombank, the country's biggest listed lender, said that, in general, there was no serious concern about deposit rates being lowered to around 11 percent. With inflation at single digit levels, rates of between 10 and 11 percent still ensure a positive real interest rate for depositors, he said.

Since the new lower rates came into effect just several days ago, it was too early to gauge their impacts on the market, he said. "If all banks agree to lower their rates, there will be no flows of money from one bank to another."

But he noted that as the gap between dong and dollar deposit rates has been narrowed, there can be a shift towards dollar deposits.

According to a weekly review published by the central bank Wednesday, partly-private lenders offered dollar deposit rates of as high as 5 percent a year last week.

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