The State Bank of Viet Nam has capped the interest rates on dong deposits at 7 per cent and on dollars at 1.25 per cent.— Photo.nld

HCM CITY (Biz Hub) — Banks are flouting the deposit rate cap to improve liquidity though, paradoxically, many are barely lending, according to analysts.

The State Bank of Viet Nam has capped the interest rates on dong deposits at 7 per cent and on dollars at 1.25 per cent.

But many banks, mostly small, are offering rates well above that.

Le Hung Anh of HCM City's Tan Binh District said two months ago he deposited VND1 billion (US47,393) in a bank for one month and was offered 8 per cent interest.

In September the bank raised the rate to 8.5 per cent, he said.

Duong Thi Ngoc of Phu Nhuan District said three months ago she was offered 10 per cent on her VND800 million deposit for a month. The rate was cut to 9 per cent and then 8 per cent but was recently raised again to 8.5 per cent, she said.

An executive at a bank in District 3 admitted the bank is ready to pay over 8 per cent for dong deposits and 2 per cent for dollar deposits.

Deposits of more than six months are paid even higher rates. However, there are no rate caps for them.

Thinh Vuong Commercial Joint Stock Bank, for instance, offers 8.3 per cent for six-month deposits, while the Sai Gon Commercial Joint Stock Bank offers 8.8-8.92 per cent.

Analysts are puzzled by what they say is a paradox, pointing out that according to SBV data deposits were up 9.5 per cent by late August though loans outstanding had only risen 5.4 per cent.

Vo Van Chau, former general director of the Phuong Dong Commercial Joint Stock Bank, told Nguoi Lao Dong newspaper that some banks lacked assets to use as collateral to borrow on the inter-bank market or through open-market operations (OMO).

As a result, they are forced to get deposits by paying more, he said.

Others said some banks had accepted gold deposits until last year and lent out the gold. They have been unable to get repayment and so need money to buy gold to repay their depositors, they said.

Heads of some banks said that many lenders are afraid of a possible liquidity crunch at the end of the year and so are mobilising deposits now.

Analysts said the practice is not new but difficult to control because banks produce proper documents when asked by inspectors.

A deputy director of the SBV's branch in HCM City admitted that uncovering banks' interest-rate violations has proved to be very difficult. —VNS