While the Vietnam dong interest rate race has cooled down and banks have eased the dong deposit interest rates, the dollar interest rate war has triggered.

What happened with dong deposit interest rates is now happening with dollar deposit interest rates. Commercial banks have been trying to “dodge the laws”, offering the deposit interest rates higher than the ceiling levels stipulated by the State Bank. Also, the dollar deposit interest rates applied to different terms of deposits are nearly the same.

The State Bank, in an effort to discourage people and businesses to keep dollars in their coffers, has decided to lower the ceiling dollar interest rates to two percent applied to the deposits from individual and to 0.5 percent applied to the deposits from enterprises.

Banks fear they would lose depositors

The decision by the central bank to set up low ceiling interest rates for dollar deposits has brought initial effects. Some banks once slashed the dollar interest rates to 0.5 percent. A lot of people have decided to sell dollars for dong and deposit dong at banks to enjoy higher interest rates, because they believe that it is less profitable to keep dollars than dong

However, the situation has become different recently. Many banks are offering the same interest rate of 2 percent per annum for all kinds of deposits from one month term to 13 month term. Other banks are offering gifts, or running promotion campaigns to attract depositors.

Especially, some commercial banks are quietly offering the interest rates which are higher than the ceiling levels stipulated by the central bank. Though the banks still quote the ceiling interest rate at 2 percent, they make verbal undertaking that they would pay 3-3.5 percent per annum.

The move of hurriedly raising the dollar interest rates by commercial banks shows that the dollar supply and demand is now in imbalance.

According to the State Bank of Vietnam, by mid June 2011, the deposits in foreign currencies had increased only by 8.9 percent over the end of 2010, while the outstanding loans in foreign currencies had increased more sharply by 22.4 percent.

Meanwhile, the deposits from the public account for 70 percent of the total foreign currency capital mobilized by commercial banks.

The fact that people have shifted to deposit dong instead of dollars, and the information that the volume of dollars sold by state owned enterprises to commercial banks have been in dribs and drabs, both have raised the worries that banks would not have enough dollars to provide to enterprises.

Meanwhile, it is expected that the demand for dollar loans tends to increase towards the end of the year, when businesses need dollars to make payment for imports. Once banks do not have enough dollars to provide to businesses, they would not be retain the clients.

Dollar low interest rates make dollar loan demand high

Observers have said the demand for dollar loans have been increasing because the dollar lending interest rates are lower than dong rates. The dollar lending interest rates now hover around 6-8.5 percent per annum, while the dong interest rates are between 18 and 26 percent per annum.

Since the State Bank of Vietnam has set up low ceiling interest rates for dollar deposits, the margin between the deposit and lending interest rate has become bigger. Vietcombank, for example, is paying 2 percent per annum in interest rates for dollar deposits, while the bank can lend at 7.3 percent (short term loans) or 8.3 percent (long term loans).

 

When setting up the low dollar interest rates, the State Bank aimed to encourage people and businesses keep and use dong instead of the dollar. However, the goal has not been reached because the dong interest rates remain overly high, which makes the dollar loans continue to be attractive.

Experts say that the dong interest rates would not decrease significantly in the immediate time, once the inflation rate remains high--expected to be at 15-17 percent in 2011.

Vietnamnet/ SGTT