Vietnam: Central bank warns against high deposit rates

• The central bank has threatened to sanction banks offering high interest rates on deposits fearing a race could destabilize the banking sector.
• Some lenders, like Viet Capital Bank, have announced deposit rates as high as 10.2%. The rates at the beginning of 2019 were around 8-9%.
• Interest rate hikes threaten the stability and health of the banking system, creating a negative sentiment, and could potentially lead to an interest rate race that destabilizes the currency market, said State Bank of Vietnam (SBV) Governor Le Minh Hung.
• The SBV on 28 Aug 19 issued a circular instructing banks to strictly control how they raise capital, saying that some institutions have increased interest rates for current accounts and/or offering high interest rates for deposits in Vietnamese dong.
• The central bank will “monitor the situation closely and strictly handle violations”, including lowering credit growth ceilings of violating credit institutions, said Hung.
• Banks must maintain reasonable interest rates within their ability to balance capital without affecting the stability and general interest rate level in the market, he added.
• Economist Nguyen Tri Hieu had told VnExpress International that the main reason banks have been rushing to raise capital is that they have to balance and restructure their capital to comply with new regulations on credit safety limits.
• A central bank regulation which came into effect in 2019 requires banks to restrict the use of short-term deposits for issuing medium and long-term loans to 40%, down from 45% in 2018.
• Vietnam’s central bank controls credit growth among commercial banks. For instance, state-owned lender Vietcombank’s “credit room” is 15% in 2019, while OceanBank which the SBV acquired for zero dong is given 20%.
• Credit growth of the whole system was 7.33% in 1H19, given the SBV’s target of maintaining it at 14% in 2019, according to SBV statistics.

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