The interest rate race, which began in 2006, has been continuing right from the first days of 2007. The Technological and Commercial Bank of Vietnam (Techcombank) announced a new interest rate programme on VND and US$ deposits, commencing on January 1, 2007.

The interest rates for VND 12-month term deposits of up to VND50 million, VND50-200mil, and more than VND200 million are now at 9.42%, 9.45% and 9.48% per annum respectively, representing increases of between 0.12% and 0.17%.

Meanwhile, US$ deposits have seen the increases of 0.1%-0.23% per annum. The interest rates for 24-month term deposits have seen the biggest increases, of 0.2-0.23% per annum, to 5.2%, 5.23% and 5.25% for deposits of up to US$5,000, US$5,000-15,000 and more than US$15,000.

Other joint stock banks have followed the move. On January 15, the Saigon – Hanoi Bank announced it would raise the interest rate on both VND and US$ deposits. The rate for one-month term VND deposits is now at 7.68% instead of 7.32% per annum, for two-month term, 8.16% (7.92%), and three-month term, 8.76% (8.64%).

One day later, An Binh Bank (ABBank) on January 16 decided to raise the interest rates by 0.1%-0.25% for US$ one-, two-, three- and six-month term deposits. The interest rate for the two-month term deposit of between US$50,000 and US$100,000 has increased from 4.35% to 4.55%.

On the same day, G-Bank also announced the new interest rates for VND deposits by 0.04-0.35% per annum. The interest rates are now at 3.68%, 9.11% and 9.35% per annum for six-month, 12-month and 24-month term deposits.

The deposit interest rates keep increasing despite factors favouring interest rate stabilisation in the market: 1. inflation was curbed at the lowest level in the last three years 2. Interest rates were raised many times in the last year, despite the superfluous usable capital of banks, 3. Basic interest rates declared by the State Bank of Vietnam for January 2007 remain unchanged 4. Interest rates in the world market are stable.

However, the interest rates for deposits offered by commercial banks keep rising. There are four possible reasons:

Firstly, most of the banks that have raised deposit interest rates are newcomers in market; therefore, they have to offer attractive interest rates in order to raise funds from the public.

Secondly, the demand for borrowing money to buy consumer goods is increasing in the month just before the Lunar New Year. As a result, commercial banks have to raise the deposit interest rates in order to get more capital for lending.

Thirdly, banks have raised the interest rate to attract capital into banks. Securities trading prove to be an attractive investment channel, and a big volume of capital has been injected in securities trading floors.

Fourthly, the real estate market is expected to heat up in the long term, and a large volume of capital will be pumped into real estate projects. Commercial banks may find it necessary to offer attractive interest rates in order to raise funds from the public.

Source: VNECONOMY