The dry-out of deposits in commercial banks since early January has pushed the deposit interest rates to spiral upwards so far.

The current rates in the inter-bank market has already multiplied from the 6.25 percent level applicable in early January and showed no signs of stopping.

Almost 10 joint-stock banks have announced increases in savings interest rates, with top hike offered for long terms ranging from nine and 12 months. The Southeast Asia Bank (SeA Bank) is leading with an annual interest rate of 10.8 percent for 12 month savings.

A series of other banks are preparing to follow suit, said economists.

Executives from commercial banks attributed the situation to tough measures freshly taken by the State Bank to tighten circulation of cash on the market in an effort to control inflation.

The State Bank’s decision to issue over 20 trillion VND worth of treasury bills compulsory for credit institutions from March 17 will such out large volumes of cash from the market because these credit institutions, number 41, have to buy these bills, which are not allowed in transactions for recapitalisation.

Another decision on increasing key interest rates and the rate of compulsory reserves on savings in national banknotes has also caused pressures on commercial banks, pushing savings interest rates to hike.

Along with this effort, a number of banks, both joint-stock and State run, have stopped lending to enterprises and focused on retrieving debts to make up cash deficits.

Techcombank CEO Nguyen Duc Vinh said although keen in extending loans, his bank now limited its lending to projects in urgent need.

Inflation escalation is another cause to cash crunch, said economists. With the inflation rise to reach 2.8 percent in January and is forecast to pass the 2.5 percent rate in February, ordinary people are not interested in putting their money into banks. They prefer to invest in gold and real estates which have proved to be lucrative businesses.

Annual savings interest offers by a majority of banks have so far increased by between 1.8 and 2.4 percent over the previous years.

Economic analyst Huynh The Du from the Fulbright Economic Teaching Programme of the US said the State Bank should consider an option to reduce the number of infrastructure construction projects as a measure to ease pressures for capital supply and control inflation.

The Bankers’ Association has called on members to strictly follow measures to increase deposits, take initiative in balancing demand and supply in cash and make a plan in attracting cash so as to meet demand for economic development.

In an office patch circulated among members, the association has asked them to flexibly handle the interest rates while strictly supervise the credit growth as well as credit quality in an effort to effectively control inflation.

Source: VNAgency.