Banks not moving towards US$ interest rate cut

Experts thought that commercial banks would lower deposit interest rates following the FED’s move, but the banks have taken no action.

Opinions differed about whether US$ interest rates would go down after the FED’s move to cut the interest rate.

In the past, right after FED announced raising the interest rate, Vietnamese commercial banks also raised the deposit and loan interest rates accordingly. However, it has been happening in the opposite way recently: FED maintained the US$ interest rate for a long time, while domestic banks have been trying to raise their interest rates since the beginning of the year.

An Binh Bank, for example, is now offering the very impressive interest rate of 5.45% per annum.

Luu Duc Khanh, Director General of ABBank, said that the bank would not think of lowering deposit interest rates until it could mobilise enough capital to fund import-export deals. He said that ABBank was now focusing on funding import-export activities; therefore, the demand for US$ capital has been increasingly high.

The Deputy Director of a joint stock bank in HCM City said that his bank did not plan to cut interest rates in the short term. He said that FED’s move did not much affect the exchange rate and interest rate policy in Vietnam.

“The demand for foreign currency loans is now very big,” he said. “As Vietnam integrates more deeply into the world, local enterprises need to import equipment and technologies, and they need capital in US$ to pay for the imports.”

In fact, US$ interest rates, though they have been raised several times so far this year, are still lower than VND interest rates. The low interest rates of US$ loans make US$ loans more attractive to enterprises.

Though admitting that the inter-bank interest rate may decrease as domestic banks have transactions and links with international banks, local bankers still insist on the firm interest rates of US$ deposits and loans.

Meanwhile, Nguyen Phuoc Thanh, Deputy Director General of Vietcombank, thinks that US$ interest rates will go down. However, he said that not all banks would cut interest rates, because they still needed to consider their foreign currency capital supply.

Ho Huu Hanh, Deputy Director of the HCM City Branch of the State Bank of Vietnam, also thinks that an interest rate cut is possible, especially as rates are now at high levels (5.05-5.25% per annum for 12-month term deposit).

However, he said that several banks might not reduce interest rates because they wanted to attract clients with high interest rates. He said that FED would have meetings discussing the adjustment of the US$ interest rate in November and December, and that it would be very risky for banks to pursue an interest rate race.

Once US$ capital becomes profuse, and foreign banks cut interest rates on deposits, domestic banks will have nowhere to make deposits in order to get profit and pay interest to their clients.

Source: http://english.vietnamnet.vn/biz/2007/09/745059/