Vietnam - Interest rate still prioritized for short term capital flows

At the press conference on March 12, the State Bank of Vietnam (SBV)'s governor, Nguyen Van Binh, said that previously, credit institutions often listed the interest rate benchmark at two digits: 14% per year for deposit rate in dong and 2% per annum (p.a.) for US dollar saving rate.

But sometimes when the central bank has not issued new interest rate benchmark, the interest rate listing table of these banks was richer with: one month at only 12-13% p.a. and less than one month at 6% p.a.

Immediately after the central bank issued new interest rate benchmark, Vietnam Commercial Joint Stock Bank of Industry and Trade (VietinBank-CTG) said that it is maintaining the demand deposit rate at 3% p.a., for less than 1 month at 5% p.a., from 1 month to less than 12 months at 13% p.a. and 36 month term at only 9% p.a.

At Bank for Investment and Development of Vietnam (Bidv), the interest rate benchmark is almost straight whereby demand deposit rate is at 3% p.a. but in other terms of 1, 2, 3, 6, 9, 12, 18 and 24 months at 13% p.a. and 36 months at 12.5% p.a. although Bidv specializes in funding a very huge amount of capital for key projects and needs a large amount of capital with long term.

Likewise, at Asia Commercial Joint Stock Bank (ACB), if terms of 1, 2, 3, 6 and 9 months enjoy the interest rate of 12.88% p.a. the 24-month term is only 11.4% p.a. and 36 months at 10.9% p.a.

In addition, many other lenders almost maintain only two interest rates of 5% for non-term saving and less than 1 month while other terms of 1, 2, 3, 6, 9, 12, 24 and 36 months at 13% p.a.

Commenting on the current interest rate curve, Dr. Nguyen Thi Thanh Huong, editor in chief of the Banking Magazine, former Deputy Director of the State Bank Accounting Department said: "the right curve of interest rate always reflects the trend: higher interest rates for longer terms and vice versa. But the current interest rate curve is not as per thumb rule."

Experts often say that the interest rate curve is the surface reflecting the interest rate trends and relating to many issues in the financial and monetary markets. But in the separate banking operations, it is a measure of liquidity, the sustainability of capital structure and further resources for investment.

In other words, to stabilize the liquidity, the structure of the deposits of credit institutions system must be stable and interest rates must be consistent with each term.

With such viewpoint, Thanh Huong said that when the long term capital accounts for big proportion, it will bring high stability in the capital structure of banks, at the same time, the capital using performance can exceed 90%, even more.

VietBiz24

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