Deposits at city banks dip, rate cap breached

A customer makes a transaction with a bank in HCMC in a file photo. Deposits at banks in HCMC are falling sharply, prompting many smaller banks in the city to breach the 14% deposit interest rate cap to attract more funds - Photo: Minh Khue

HCMC – The total amount of deposits at banks in HCMC is falling sharply, prompting many smaller banks in the city to breach the ceiling of 14% for deposit interest rates to attract more funds, said a senior official of the central bank.

Nguyen Ngoc Thang, deputy director of the State Bank of Vietnam’s HCMC branch, told a year-end review meeting on Wednesday that deposits at local banks have taken a nosedive since September 7 when the central bank enforced the cap.

As of November 10 last year, deposits at joint-stock banks had plunged by nearly VND41 trillion, or a drop of 10.5%, after a number of depositors shifted to state-owned commercial banks, where interest rates are more stable.

According to Thang, the sharp fall in deposits from the public and institutions at banks is attributed to the fact that lenders have strictly complied with the interest rate cap.

As of November 3 last year, total mobilization by state-owned commercial banks rose by VND1.44 trillion versus the period before September 7 when the central bank issued Instruction 2/CT-NHNN on the regulatory ceiling.

Moreover, many investors have transferred capital to other investment channels when Vietnam dong deposit rates have significantly shrunk compared to previous times. For instance, the gold price spike over the past time has benefited gold investors and thus they have rushed to withdraw deposits, causing the current liquidity crunch at some credit institutions.

Latest statistics by the HCMC branch of the State Bank of Vietnam shows that the gold amount deposited at 13 banks in the city is equivalent to over VND10 trillion.

To survive the liquidity crunch, several smaller banks have had no choice but to breach the interest rate ceiling.

Dao Hong Chau, deputy general director of the Vietnam Export Import Commercial Joint-Stock Bank (Eximbank), noted some small banks had caused bad impacts on others when offering depositors higher rates than the ceiling. Chau believed that the failure of raising capital on the inter-bank market had forced these lenders to violate the rule.