Interest rate race has Vietnamese businesses on edge

By Hong Suong-Thanh Xuan, Thanh Nien News

Email Print

A bank employee counts Vietnamese dong bills at a bank in Vietnam. Photo: Reuters A bank employee counts Vietnamese dong bills at a bank in Vietnam. Photo: Reuters


In anticipation of the central bank's possible move to further limit the use of short-term deposits for loans, banks in Vietnam have rushed to attract savings with higher interest rates, starting a competitive race that might soon hurt many borrowers. 
Latest figures from the central bank's office in Ho Chi Minh City showed that local commercial banks have offered as high as 8.2 percent a year for deposits longer than 24 months.This is the first time since 2014 dong deposit rates have exceeded 8 percent.
Eximbank, for instance, last week offered 8 percent to deposits of at least VND10 billion (US$448,000) in 36 months and 7.6 percent a year to similar deposits in 24 months. The new rates are 1-1.2 points higher than the interest rates the bank pays on smaller deposits.
It was soon followed by other banks such as Ocean Bank and SeABank. Bigger banks such as Sacombank and Vietcombank, on the other hand, have been gradually increasing their deposit rates since the end of last year.
At Sacombank, the fourth largest partly-private lender by assets, a 13-month deposit is now given an interest rate of 7.55 percent a year, compared to 5.5-6.8 percent a year for shorter terms.
A vice director of a commercial bank told Thanh Nien that banks have raised deposit rates, as the central bank is considering tightening their use of short-term deposits for medium and long-term loans.
The central bank wants to reduce the limit from 60 percent at the moment to 40 percent in an attempt to tighten lending for the real estate sector, which grew 18 percent to VND360 trillion (US$15.87 billion) last year, compared to the average growth of 14-15 percent in 2012-14.
The new limit, if approved, will cause trouble to local banks where short term deposits often account for 70-80 percent of total deposits, according to the banker.
Many lenders have already exceeded that proposed 40 percent limit, he said.
Negative impacts
The race has raised concern about higher lending rates, even as the central bank's governor Nguyen Van Binh at the end of last week ordered local lenders to set "reasonable" interest rates to show their sympathy with their clients.
Speaking with Thanh Nien, Nguyen Tri Kien, director of Ho Chi Minh City-based backpack and handbag maker Minh Tien, said his company has taken out a six-month loan from a local bank with an interest rate of 8 percent.
Although the bank has yet to announce higher rates, Kien feared that it will soon.
Bui Quang Tin, a lecturer at the Banking University of Ho Chi Minh City, forecast that lending rates will eventually rise to 11-13.5 percent this year. The rates for short-term loans now start at less than 7 percent. 
Such high borrowing costs will erase all profits earned by local companies, he said.
Moreover, when lending rates are high, many other sectors which heavily rely on bank loans such as real estate and securities will also be negatively affected, according to Tin.

More Business News