Banks again breach deposit rate cap

After staying cool for the last few months, the race to attract deposits among banks has become heated again, with many banks admitting to having broken the deposit interest rate ceiling.

At the review meeting on last year’s operations of commercial banks based in Ho Chi Minh City held yesterday, Truong Thi Thuy Nga, director of the HCMC branch of Vietcombank, admitted that the deposit interest rate amounted to 16 – 17 percent.

However, the cap set by the State Bank of Vietnam is only 14 percent a year.

Nga said she had to meet the major depositors , who are financial directors or major accounts of the businesses, in person, to persuade them not to withdraw their deposits and turn to other banks, which offer higher rates.

However, there are cases when she could do nothing but watch her bank’s mobilized capital flow to others, Nga said.

Also speaking at the meeting, a representative of the municipal Department of Industry and Trade said there is no other country that has lending interest rates as high as Vietnam.

Banks have to mobilize capital with an interest rate of 18 percent a year, so they have to charge borrowers with rates of up to 20 percent a year, discouraging the latter to access bank loans, he said.

“Thus, the central bank should stay firm on penalizing banks that breach the interest rate cap,” he urged.

For his part, Deputy Governor of the State Bank of Vietnam Tran Minh Tuan admitted that the banks had stopped violating the deposit interest rate regulation for a while, when the central bank intensified crackdowns on certain violators.

“Things have gone back to normal now,” Tuan said, adding that if the violations cannot be curbed soon, lending interest rates will never be cut.

He asked the banks to provide testimony so the central bank can impose strict sanctions on the violators.

He said many banks are also offering loans at low interest rates, but these loans account for just a small proportion of the banks’ total outstanding loans.

“For instance, a bank said it will allocate VND7 trillion for loans at interest rate of 17 percent a year, but this only accounts for 13 percent of total outstanding loans,” Tuan said.

“The remaining 87 percent belongs to loans with interest rate of 19.5 percent a year.”

The central bank said that 90 percent of the deposits of the public are short-term savings, mostly for just one month. Meanwhile, outstanding loans for medium- and long-term loans of banks currently account for as much as 47 percent of the total figure.

Thus, many banks have to break the interest rate ceiling to solve the liquidity problem, it said.

The central bank also admitted that its inspectorate tasks have not been conducted appropriately and effectively, a fact that ultimately resulted in the failure to detect the violators.

The regulations are not completely developed, leaving loopholes for banks to exploit, it said.