Vietnamese banks effect slight cut in deposit rates

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Interest rates have begun to fall this month due to improved liquidity at banks, but experts said sharp rate cuts should not be expected soon.

Most banks now offer to pay 14 percent a year on deposits of less than VND100 million.

Although some are still breaking the central bank's deposit rate ceiling of 14 percent, higher rates are only given to large deposits of more than VND1 billion.

Some banks have even set their rates under the cap. Eximbank, for instance, cut its rates to as low as 13.85 percent a year. Asia Commercial Bank is offering 13.88 percent on most deposit terms.

Le Xuan Nghia, deputy head of the National Financial Supervisory Committee, said liquidity flows, though not really strong, have improved. Many banks now have surplus cash to buy government bonds, he said.

According to the committee, local banks invested around VND30 trillion in government bonds in the first half of 2011.

Nghia said it is likely that interest rates will continue to fall, but added that the central bank would want to keep rate cuts slow and steady amidst high inflation. 

A manager at a commercial bank in Hanoi said as inflation is still high at 20.8 percent in June, clients do not want to see deposit rates being cut. "Banks have to consider their interest rates carefully because they would risk losing customers if they lower deposit rates and their rivals don't do the same."

Nghia said commercial banks were  watching each other closely before making their moves. When BIDV, Vietnam's third-largest lender by assets, cut its rates in 2008, it prompted other banks to follow suit, he added.

The central bank warned lenders last week about offering depositors interest rates that are higher than allowed. "Banks are racing to raise interest rates for residential deposits without taking into account the potential damage to the system," the State Bank of Vietnam said in a statement.

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