Uptick in dong deposits

The State Bank of Vietnam officially anounces the capital mobilization growth rate for the previous month at the end of the first week of each month. Thus the official March figure won’t be known until April 5 or later.

However, reports by local branches of the central bank all showed a welcome uptick in loanable capital in March. (In the first two months of the year, mobilized capital decreased by 0.17 percent from the end of 2009.)

In some localities, mobilized capital grew faster than growth in outstanding loans, indicating an upward trend in deposits by the public. Meanwhile, commercial banks said that deposits by economic institutions were only modest. (In the first two months of the year, the deposits from institutions decreased by almost six percent).

“In general, the deposits from the public keep rising profusely,” said the director of a branch of Vietcombank. “However, the problem is that many of these are short term deposits”.

Since people now worry about high inflation and expect the deposit interest rates to increase further, they prefer making short term deposits which allows them to be flexible in using capital.

“Therefore,” the director said, “the capital supply remains unstable. Today you can say that you have loanable capital in excess, but it will not be a surprise if tomorrow you say that you lack capital. “Weak liquidity remains the headache of banks”.

That also explains why many commercial banks still dare not expand credit. Indeed, many localities have reported a low growth rate for loans.

Dong interest rates steady

Contrary to predictions, dong interest rates have stopped rising; big joint stock banks held them steady last week, and some banks said they intend to slash interest rates in anticipation of possible capital excess.

There have been widespread reports that clients, both businesses and individual borrowers, have refused to borrow when quoted annual lending interest rates in the 17-18 percent region. Once the demand for capital decreases, banks have no reason to try harder to attract deposits.

Meanwhile, banks are raising dollar deposit interest rates to about five percent per annum. This has been attributed to the higher demand for dollar capital from businesses that are refusing dong loans due to overly high interest rates.

Will interest rates now fall?

The State Bank of Vietnam last week announced that its basic interest rate for April will be unchanged at eight percent. It’s being noted that the central bank did not address the premium it will allow banks to charge above the basic rate. And analysts believe that the central bank has every reason to keep silent on that score.

Some watchers guess that the central banks are still waiting for more data before it decides whether to adjust the interest rates. It’s also true that it is no longer urgent to raise the ceiling rate banks may pay for dong deposits, a step for which commercial banks were clamoring.

Some analysts claim to see signs that the central bank will slash interest rates to pave the way for commercial banks to lower their own lending rates.

Source: VietNamNet/Lao dong