Though lending has grown only slowly, banks are still trying to raise interest rates for deposits, driving the monetary market.

Statistics show that outstanding loans in the first months of the year saw a slower growth rate compared to the same period of previous years. The frozen real estate market is the greatest reason behind the slow lending growth rate. After a State Bank of Vietnam (SBV) warning about bad debts, commercial banks dare not give loans to infrastructure and housing development projects any more. The banks are also keeping cautious while funding aquaculture projects in the coastal areas of the central region and Cuu Long (Mekong) River Delta.

Nevertheless, banks still rival each other in raising funds, trying to mobilise more capital in US dollars to invest in the international financial market and more VND capital for re-lending in the inter-bank market.

Many commercial banks have announced higher interest rates for deposits: rates for VND have increased by 0.12-0.24% per year over the beginning of the year.

Banks in Vietnam currently pay interest rates of 4.12% per year for six-month and 4.2% per year for 12-month terms, while rates offered by Singaporean banks are 5.211% and 5.366% per year respectively. Domestic banks can raise funds in the domestic market and then deposit the raised funds at Singaporean banks to get margins. Analysts believe they reap satisfactory margins of 0.4-0.9% per year in lucrative deals with no risks.

As for VND capital, banks may re-lend mobilised funds on the inter-bank market, and the overnight interest rate has increased to 6.5-6.8% per year. In addition, they can inject their money in valuable certificates and securities, especially joint stock banks’ shares and bonds of various kinds.

Reports by commercial banks show that they have tended to lower their lending proportion, while raising the proportion of investment in other channels.

The Bank for Investment and Development of Vietnam (BIDV) is planning to issue VND3,250bil in bonds in order to raise its chartered capital. Other state-owned banks are also seeking to raise more capital by issuing bonds worth several thousand billion VND while joint stock banks are trying to raise more capital to strengthen their financial situation.

The HCM City Development and Investment Assistance Fund has announced it will raise VND2tril in city bonds, and with banks and financial institutions trying to mobilise more capital from the public, the monetary market is expected to continue heating up in the coming months.

Source: VietnamNet