Banks in race to hike deposit interest rates hinh anh 1Illustrative image (Source: VNA)
Hanoi (VNA) - The list of banks taking part in the race to raise deposit rates continues to lengthen, and this has taken the interest rate on long-term deposits to 8.4 percent.

Joining small banks in the race now are not just small lenders but big lenders and even State-owned behemoths.

But the increase in interest rates is still confined to medium- and long-term deposits.

State-owned Bank for Investment and Development of Vietnam (BIDV) adjusted its interest rates twice between February 22 and March 2, and the rate on deposits of 13-18 months went up from 6.1 percent to 6.5 percent. For 24 to 36 months it went up from 6.3 percent to 6.8 percent.

Smaller banks like Eximbank, SeABank and OCB have already raised their rates on long-term deposits to 8 percent.

VietABank offers 8.38 percent on deposits of 100 million VND or more for 13 months and above.

By early March even the most conservative banks had joined the race to hike rates.

State-owned Vietcombank, which did not join the rush to hike rates last time, has increased interest rates now, but only on short-term deposits unlike the others.

Its rates for deposits of one to three months are up by 0.3-0.5 percent.

But, significantly, Vietcombank’s rates remain lower than the central bank’s cap of 5.5 percent.

Analysts attribute the hikes to factors like the need for long- and medium-term funds to grow credit this year.

Many experts had anticipated the issue and warned there would be demand for long- and medium-term funding after they saw the economy clearly recover and the Government sign a series of bilateral and multilateral trade agreements, which is likely to increase businesses’ demand for funds.

Another reason is that 80-90 percent of deposits now are short-term while demand for long- and medium-term loans is growing rapidly.

The State Bank of Vietnam (SBV)’s HCM City branch reported that last year the ratio between short-term and long- and medium-term loans was 44:56 percent. It is normally 50:50.

In this scenario, the SBV’s amendments to Circular 36/2014/TT-NHNN reducing the ratio of short-term deposits that can be used for medium- and long-term loans from the current 60 per cent to 40 percent has caused deposit interest rates to rise.

Besides, the risk weightage for loans to the real estate sector will be raised to 250 percent from the current 150 percent.

As a result, banks have been forced to hike interest rates on long-term deposits so that they have enough funds to provide long- and medium-term loans.

An SBV spokesman said that in recent months credit demand has shot up, especially before and after the New Year in early February, and the trend is likely to continue.

But it should not be too worrying since interest rates remain acceptable at 4.5-5.4 percent for deposits of up to six months, and 5.5-7 percent for longer terms.

However, the fact shows that the hikes have not benefited either depositors or borrowers.

Bao Viet Securities Joint Stock Company said the high interest rates apply only for deposits with long terms and large size (equivalent to billions of dong or more) while the overwhelming proportion of depositors park small amounts for short periods.

However, the deposit interest rate hikes are likely to cause an increase in lending interest rates, creating pressure on both corporate and retail borrowers.

Thanks to the restructuring of the banking system, lending rates have come down by half since late 2012 to 9-11 percent for ordinary loans and 6.5 percent for priority loans.

But deposit mobilisation has picked up with the interest rate hikes, creating the possibility of a surge in lending interest rates.

Interest rates on consumer loans have started to go up, meaning rates on other loans too may soon rise.-VNA