>> State bank takes drastic measures to lower interest rates
Deposits fell sharply this week, after the application of a 14% cap on deposit interest rates.
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| Hundreds of billions of VND have been withdrawn from big banks |
A total of nearly VND1 trillion (USD48 million) has been withdrawn from Vietnam International Commercial Joint Stock Bank (VIB) in one week. Southern Bank has also seen the withdrawal of VND200 billion (USD9.6 million) in the same time period.
Hundreds of billions of VND have been withdrawn from big banks such as Vietnam Bank for Agriculture and Rural Development (Agribank). A representative from Agribank said, “This is unprecedented."
Money moves towards big banks and speculation
When the annual deposit interest rate was capped at 14%, many have moved their deposits to speculation investments, such as gold, securities and foreign currency.
In recent days, the price of gold in Vietnam has risen above the price in the world market by between VND1.5 million (USD72) and VND2 milion (USD96) per tael. When world gold prices dropped to below USD1,800/oz, many people in Ho Chi Minh City rushed to buy.
Many gold businesses have proposed to the State Bank of Vietnam that they be allowed to import more gold. This proposal has also increased the demand for USD purchase demand, affecting the exchange rate.
A smaller portion of this capital has been pumped to securities. Last week, market value averaged VND1.7 trillion (USD81.73 million) a day on Hochiminh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX), representing a big jump from the week before September 2.
Many people have also withdrawn their deposits from small banks to bigger ones for the safety in case of encountering risks.
Difficult times for banks
Some commercial banks, including An Binh Bank or Western Bank, have started to try ways to get around the restriction. They give more attractive short-term deposit interest rates, which sometimes add up to as much as 15% per year.
This is likely a reflection of worries by commercial banks about their liquidity. If the withdrawal trend continues, smaller banks themselves will be forced to borrow at high interest rates.
Meanwhile, many banks are having to face the problem of bad debts. As of late July it was estimated that 3.04% of outstanding loans were bad, compared to 2.16% at the end of 2010.
