According to VNBA, the interest rates on 3-month, 6-month, 9-month and 12-month term deposits are hovering at the agreed ceiling levels. For example, state-owned banks offer the rates of between 0.65-0.72%/month on 12-month term deposits, or 0.03% lower than the agreed ceiling level, and 0.04% higher than the floor levels.

Currently, the interest rates on deposits remain at high levels, the growth rate of capital mobilisation is higher than credit growth rate, while the usable capital of commercial banks remains in excess, the report by VNBA stated.

Also according to VNBA, inflation has been curbed, but remains at a high level. It is expected that the foreign direct and indirect investment flow into Vietnam will increase in the time to come, thus influencing the capital supply and demand. Therefore, VNBA has called on commercial banks to cut interest rates under the spirit of the agreement reached among the association’s members in April 2007.

VNBA said that 2007 would be a special year for Vietnam’s monetary market. Though the State Bank of Vietnam has tightened the monetary policies (raising the required compulsory reserve ratio to 10%, raising the interest rates on State Bank bonds to over 7%, raising the frequency of withdrawing cash through the open market), the usable capital at banks remains superfluous.

The main reason behind the excessive capital is the high inflow of foreign capital. Meanwhile, credit growth rate is expected not to be higher than previous years. A lot of paradoxes exist on the monetary market: the central bank tightens monetary policies, but capital is still superfluous; usable capital is in excess, but interest rates stay firm.

VNBA acknowledged that commercial banks still argue about whether to lower interest rates. Several banks say that they cannot lower interest rates again for fear that the high inflation will lighten the pockets of depositors. Meanwhile, other banks say that interest rates lower than the inflation rate can be accepted in the short term, if the depositors’ long-term benefits can be ensured. If commercial banks lower their deposit rates, they will have to pay less for capital costs, which can help reduce the lending rates, thus helping stimulate production.

Though banks maintain contradictory viewpoints on the interest rate policies, none of them are reducing interest rates.

Interest rates applied by commercial banks (%/month)

Source: VNBA

Source: DTCK