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Vietnamese Commercial Banks Increase Interest Rate for Deposits, Lending - Vietnam Briefing News

Nov. 26 — Several Vietnamese commercial banks increased interest rate returns on dong deposits to 13 percent per year, as well as offered other incentives to attract new customers and retain existing ones.

HDBank and Southeast Asia Commercial Bank are two banks that now offer 13 percent on dong deposits of 12 months or more. SeABank also offers a 12 percent rate of return on nine month deposits and 11 percent on non-termed deposits.

In addition, some banks have launched promotional programs including providing gifts and cash bonuses on deposits. On Teacher’s Day last week, NamABank offered an additional bonus interest rate of 0.5 percent per year for deposits. The competition for customers’ deposits in commercial banks, particularly fledgling banks, is likely to heat up in the coming months, according to a Thoi bao Kinh te Viet Nam (Vietnam Economic Times) report.

However, high deposit rates might have a negative impact on firms relying on capital from commercial banks to finance production, as commercial banks are likely to shift lending to higher-risk, higher-interest loans to offset the high rates they will provide for deposits, Vietnam Banking Association General Secretary Duong Thu Huong cautioned.

Most banks were currently offering loans at roughly 18 percent to 20 percent per year to individuals, and up to 22 percent for loans without collateral.

Meanwhile, business loans were only fetching banks returns of 16 percent to 19 percent per loan per year. As commercial banks find themselves in an increasingly competitive environment to attract depositors, their lending rates are soaring dramatically, generating fears that lending would slow and banks will fail to meet their credit growth targets for the year.

Le Huy Dung, director of DaiA Commercial Bank, told Vietnam Investment Review that his bank was lending to individuals at rates of 17.5 percent to 19 percent and to corporate clients at 17 percent to 18.5 percent.

“Since last month, the bank’s lending interest rates have increased significantly, following the trend of higher deposit interest rates, causing customers to be reluctant to borrow,” Dung was quoted as saying. “As a result, DaiA Bank will be unable to fulfill its credit growth target, which was set at 30 percent this year.”

Ironically, although the latest deposit interest rate war was triggered by a shortage of capital for banks, the race to offer a higher rate of return on deposits might end up eventually causing that same effect.

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