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Small banks trigger a new interest rate race

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A number of banks have rushed to raise the deposit interest rates in the last two months. The record interest rate increases are feared to have a negative impact on the market.  

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Banks have raised the deposit interest rates 

 

Most banks have raised the deposit interest rates by 0.2-0.4 percent per annum applied to long term deposits. However, the increases are higher at some banks. 

Ban Viet Bank, for example, has raised the interest rate by 1.4 percent, from 7.2 percent to 8.6 percent for 24-month term deposit, the highest interest rate in the market at the time.

Some other small banks have also raised the interest rates to over 8 percent per annum for 12-month term deposits. 

According to Nguyen Tri Hieu, a renowned banking expert, banks raise interest rates because the mobilized capital growth rate now is lower than the lending growth rate.  

Meanwhile, the demand for capital will be increasing towards the end of the year. 

In addition, banks need more capital because the State Bank has decided to lower the ceiling of short-term capital for long-term lending to 40 percent, commencing from early 2019.

Some other analysts attributed the deposit interest rate increases to the weak liquidity at banks. As the banks have to offer high interest rates to attract deposits to improve their liquidity, market interest rates have been influenced.

However,, the liquidity of the entire banking system is still high. However, this can be seen mostly at large banks which can easily call for capital from the public and have huge capital from State Treasury’s deposits.

The move by some small banks to raise interest rates has, to some extent, affected the market interest rate. 

However, the banks can no longer drive the market as seen previously. While the interest rates offered by small banks rose sharply, state-owned banks, which hold 60 percent of the deposit market share, have raised the interest rates very slightly.

Hieu commented that the existence of the interest rate difference is reasonable as it helps small banks become more competitive. Deposit interest rates also serve as the tool for depositors to measure risks and make decisions.

According to Nguyen Van Du, deputy chief of the Inspection Agency under the State Bank, there are weak banks which have receipts lower than expenses.

The central bank has discovered many violations in debt classification and provisioning made by credit institutions. Some banks have been found paying ‘abnormally high interest rates’ to depositors based on negotiations with them.

Regarding the restructuring of weak banks, OceanBank, VNCB and GP Bank may be transferred to investors, including foreign ones. DongA Bank is undergoing restructuring in accordance under an approved plan.

 

Source: VNN

 

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