Vietnam banks woo overseas dollars with higher rates

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Local banks are boosting interest rates on dollar deposits as they vie with each other to tap stronger remittances from overseas Vietnamese just before the Tet holiday.

Bankers said the days before the biggest holiday of the year are always the "golden period" for overseas remittances as Vietnamese living abroad want to send money home in time for Lunar New Year celebrations.

Le Nguyen Thanh Trung, director of Sacombank's remittance services subsidiary, said this year's remittances were between two and three times higher than last year. In the first three weeks of January, as much as US$150 million was sent through the company, he said.

Overseas remittances, which hit a record high of more than $8 billion last year, are a major source of foreign currency for Vietnam. However, local banks have not been able to add this source of funds to their deposits.

Economist Le Tham Duong of the Ho Chi Minh City Banking University said there is now a strong inflow of overseas remittances, but due to a large gap between the black market and official exchange rates it will be difficult for banks to tap into the funds.

"Banks are raising interest rates on dollar deposits in the hope of attracting remittances to fund lending," he said.

The average interest rate on dollar deposits in December was 4.08 percent a year, according to the central bank.

But over the past week, several banks like Southern Bank, Eximbank and Western Bank took turns to increase their dollar rates to 5.2-5.5 percent a year on term deposits.

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Although these rates pale in comparison to those on dong deposits, Duong thinks they are already too high, especially when compared with the US Federal Reserve's benchmark of 0.25 percent.

"It's possible that banks have raised dollar rates only to sell the dollars they can attract and fund dong loans," he said. "It's not easy to attract deposits now, when inflation pressures have not eased yet and there is an interest rate cap on dong deposits."

The State Bank of Vietnam has imposed a 14 percent ceiling on dong deposit rates since December 15. However, some commercial banks are circumventing this deposit cap. For depositors with balances of VND5 billion and more, they are even offering to pay 17 percent a year.

In an interview with Vietnam Economic Times on Saturday, Nguyen Duy Hung, general director of VietBank, said he did not think converting dollar funds to dong is a good solution for banks. There are many exchange-rate related risks involved, he said.

Hung said his bank raised deposit rates because it needed to attract more dollars since the demand for dollar loans is high. Most loans were taken out by importers amid the festival season, he added.

VietBank, a small lender based in the Mekong Delta province of Soc Trang, hiked its dollar deposit rates to up to 6.2 percent a year on January 19, the second increase in just one week.

Hung said interest rates will be adjusted down when his bank has enough dollar funds. He also said 6.2 percent is not the highest rate that local banks are paying for dollar deposits.

It is not indeed the highest. Saigon Commercial Bank is now paying 6.3 percent on dollar deposits while the highest rate at Navibank is 6.24 percent a year.

Economist Le Dang Doanh was quoted by news website VnExpress as saying that the race among banks to hike dollar deposit rates needs to stop.

Doanh said there is no real demand for dollar loans now.

There is a large gap of more than 10 percentage points between dollar and dong interest rates. Some companies just want to take out dollar loans and then sell them for dong to take advantage of the rate differential, he said.

Dollar loans in the banking system expanded 37.7 percent last year, compared to a 25.3 percent growth in dong loans.

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