Dollar up-valuation has lifted dollar deposit interest rates

VietNamNet Bridge – Dollar deposit interest rates are rising.  Presumably this will suck dollars out from under mattresses, thus easing the recent imbalance in dollar supply and demand.  The banking market may witness a new race to mobilize capital in foreign currencies, reports Nguoi Lao Dong.

Soon after the 2.1 percent adjustment of the dong/dollar exchange rate on August 18, commercial banks raised the dollar price to the ceiling level of 19,500 dong per dollar and also raised dollar deposit interest rates in an effort to retain depositors.

Large Vietnamese banks, notably including Eximbank, Asia Commercial Bank (ACB) and HD Bank are now quoting dollar demand deposit interest rates at circa 4.5 percent.  HD will pay over five percent for term deposits of over one year.  Other banks have also said they are planning to raise their dollar deposit interest rates in order to attract more remittances and dollars earned from tourist spending. 

Senior officers at some commercial banks point out that the dollar up-valuation benefits dollar holders and compels banks to raise the dollar deposit interest rates.  That’s because people tend to hold dollar deposits in anticipation of a dong devaluation.  Once the devaluation’s happened, banks worry that people will withdraw dollar deposits to convert them into dong.

Some financial experts believe that banks have no choice but to raise dollar deposit interest rates in order to increase their deposits enough to comply with a State Bank instruction mandating higher capital adequacy ratios by October 1.  Other analysts say that because interest rates paid on foreign currency deposits are not covered by any regulations, banks decided to push the dollar interest rates up in order to have more capital to lend.

Many bankers predict that Vietnam will see a new big inflow of remittances in the next few months. With dollar deposit interest rates in the 4.5 to 5 percent per annum range, double the interest rates now being paid in European and American markets, Viet kieu (overseas Vietnamese) may choose to transfer dollars to their relatives in Vietnam, so that the relatives can deposit dollars at Vietnamese banks.

One HCM City bank says that its fee for handling overseas remittances is 0.5 percent.

Bankers believe that the foreign currency lending interest rates will gradually move upward towards the end of the year, after the deposit interest rates have been pushed up. This will reduce the gap between the dong and the dollar interest rates.  That may induce exporting companies to do their short-term borrowing in dong rather than foreign currencies.

The dollar prices quoted by Vietcombank for August 24 were 19,475-19,500 dong per dollar, virtually the same as black market prices, 19,420-19,520 dong per dollar.