Interest rates war heats up as banks pursue customers

HA NOI — A number of commercial banks have joined in a rush to increase interest rates on dong deposits up to 13 per cent per year, as well as offer incentives and bonus interest to attract new customers.

HDBank and Southeast Asia Commercial Bank (SeABank) are among banks that are now offering 13 per cent on term dong deposits of 12 months or more. SeABank was also offering 12 per cent rates on one-nine month deposits and 11 per cent on non-term deposits.

Some banks have launched promotional progammes including gifts and cash bonuses on deposits. On the occasion of Teacher's Day last week, NamABank offered bonus interest rate of 0.5 per cent per year. The competition for deposits among commercial banks, especially smaller banks, was likely to heat up in the coming months, according to a Thoi bao Kinh te Viet Nam (Vietnam Economic Times) report.

High deposit interest rates would have a negative impact on businesses relying on commercial bank loans to finance production, since commercial banks were likely to shift lending to higher-risk, higher-interest loans, such as consumer and real estate loans, said Viet Nam Banking Association general secretary Duong Thu Huong.

Most banks were currently offering loans at 18 -20 per cent per year to individuals, and up to 22 per cent for loans without collateral. Meanwhile, business loans were only fetching banks interest of 16-19 per cent per year. As commercial banks were in a growing frenzy of competition to attract customer deposits, their lending interest rates were also soaring dramatically, stirring fears that lending would slow and banks would fail to meet their credit growth targets for the year.

Dai A Commercial Bank director Le Huy Dung told Vietnam Investment Review that his bank was lending to individuals at rates of 17.5-19 per cent and to enterprises at 17-18.5 per cent.

"Since last month, the bank's lending interest rates have increased signicantly, following the trend of higher deposit interest rates, causing customers to be reluctant to borrow," Dung said. "As a result, DaiA Bank will be unable to fulfil its credit growth target, which was set at 30 per cent this year."

Ocean Commercial Bank director Trinh Van Tuan said that his bank was also unlikely to meet its credit growth target this year, having reached only 50 per cent of the entire year's target so far. Banks were also facing difficulties, he said, since many have outstanding loans at earlier interest rates while trying to attract new deposits at higher rates.

The latest deposit interest rate war has been triggered by a shortage of capital among banks, said the director of the State Bank of Viet Nam's HCM City branch, Ho Huu Hanh.

In an effort to ease the war, the State Bank has urged credit institutions to engage in healthy competition.

At a meeting last week, State Bank deputy governor Tran Minh Tuan said that with the nation's inflation of the year expected not to surpass 10 per cent, deposit interest rates should remain below 13 per cent, while lending interest rates should be only 14-15 per cent.

Source: vnagency.com.vn