Vietnam's economists urge banks to cut interest closer to deposit rate

By Thanh Xuan - Mai Phuong, Thanh Nien News

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A HDBank teller watches as a customer counts packs of dong notes in Ho Chi Minh City. Photo: Dao Ngoc Thach A HDBank teller watches as a customer counts packs of dong notes in Ho Chi Minh City. Photo: Dao Ngoc Thach

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Following healthy profits and sagging credit growth in the first half of the year, economists said Vietnam's banks should narrow the gap between deposit and interest rates to attract more borrowers.
Dong loans currently begin at 7 percent annual interest for agriculture, export and other supported businesses and 14 for consumption, according to the central bank.
Deposit rates, meanwhile, have been capped at 5-6 percent a year for one to six months terms, and up to 7.5 percent for longer-term loans.
The general director of a bank in Ho Chi Minh City, who wished to remain anonymous, said the difference of 3-4 percentage points between deposit and lending rates is enough to cover a bank’s basic expenses including risk provisions and overhead.
Economists said banks could continue to do well after cutting their lending rates to between six and ten percent a year.
Dr Le Dat Chi, head of the finance and investment faculty at the Ho Chi Minh City University of Economics, said banks are charging borrowers almost double their deposit rates, which is “too much.”
Chi said that rising competition between local and foreign banks requires the former to restructure their funds.
“Banks must pull their interest rates down to attract customers rather then freeze their funds," he said. “Even investment in government bonds only earns them a little over 7 percent interest a year, so choosing customers is still a better option.”
Chi said banks should take the initiative instead of waiting for the deposit rates to drop further adding that he doesn't expect any major drops, if any at all.
An economist told Thanh Nien anonymously that although the government shouldn't intervene in bank interest rates, it could issue policies that require preferential loans for certain kinds of investments.
Dr Le Tham Duong, head of the business administration faculty at the Banking University of Ho Chi Minh City said banks profit mainly from loans, but credit growth has been stagnant, at a mere 3.52 percent during the first half of this year.
So they'll have to cut rates sooner or later to attract borrowers, Duong said.
But according to figures from financial analysts, banks have little reason to worry about their profits.
Vietstock reported positive net profit margins at most banks –between 2.11 and 4.37 percent during the first quarter of the year, compared to 1.8 to 4.9 percent in 2013.
The estimates were calculated as the difference between investment returns and interest expenses per average earnings.
Analysts at Bao Viet Securities Company meanwhile said Vietcombank, the country's fourth-largest lender by assets, earned VND912 billion (US$43 million) in pretax profit in the second quarter, up 5 percent from the same period last year.
Banks themselves have also reported heft margins.
The country’s second biggest lender, Bank for Investment and Development of Vietnam (BIDV) reported VND2.5 trillion ($117.9 million) of pre-tax profit during the first five months of this year.
Tien Phong Bank reported an accumulated profit of VND263 billion during the first half of the year, a figure that represents 120 percent of its half-year target and 60 percent of its year-end target.
Sacombank, the country’s ninth-biggest bank by assets, estimated it would hit a VND692 pretax profit in the second quarter, up 11 percent from the same period last year.

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