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NEWS UPDATES Asean Affairs        15 January 2011

Vietnamese banks hike interest rates on US dollars

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Some smaller commercial banks in the past week have raised the interest rates they offer on US dollar deposits by 0.9 to 1.3 percentage points to as high as 6.1 per cent per year.

Commercial banks in HCM City are actively to trying to attract dollar deposits in the first days of 2011, especially in the run up to Tet when remittances to Viet Nam increase significantly. On January 12, Viet Nam Thuong Tin Commercial Joint Stock Bank (VietBank) raised its interest rates on dollar deposits by 0.9-1.3 per cent per year for one to 36-month terms. VietBank now offers 5.9 per cent interest on six-month greenback deposits and 6 per cent interest rate on 12-month deposits, apart from other incentives.

On January 8, Western Bank announced its new short-term dollar deposit rates, increasing it to 5, 5.1 and 5.3 per cent on one, two and three-month deposits, respectively. At some other small commercial joint stock banks including the Kien Long Bank, Orient Commercial Bank, Sai Gon Commercial Bank and An Binh Bank, dollar deposit rates have been increased to between 5.1 and 5.6 per cent per year.

Southeast Asia Commercial Bank offered the highest dollar deposit rate of 6.23 per cent for short-term deposits.

The new interest rate war is seen as a bid to attract strong remittance inflows in the final weeks ahead of the Tet (lunar new year) holiday, and to meet growing demand of borrowers for US dollars.

Some banks explained the move by noting they needed extra dollars to repay depositors withdrawing funds more heavily ahead of the holiday.

Western Bank deputy director Le Dang Khoa said commercial banks were also trying to absorb more dollars to meet the growing demand of importers, many of whom had rushed to borrow dollars at low rates averaging 8 per cent per year - far lower than prevailing interest rates charged on loans made in Vietnamese dong, which were currently as high as 18 per cent.

Higher dollar interest rates could prompt more people to save dollars instead of dong, which could lower the level of dong deposits in commercial banks, setting on a new interest rate war for the domestic currency and forcing commercial banks to exceed the 14-per-cent mandatory cap on dong interest rates currently in effect.

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