Deposit, lending rates inch ever closer

Monday, Nov 18, 2013 09:39


Agribank typifies the trend. The interest rate of its deposits with the three-month term has increased by 0.5 per cent to 7 per cent per year, while the interest rate of over 12-month deposits has climbed to 8 per cent per year.— File  Photo 

The domestic financial market is witnessing a rare phenomenon that is lending and deposit interest rates have get so close to each other.

Within three recent months, many banks have silently or noisily participated in a race in raising deposit interest rates to mobilise more money from the public.

Agribank typifies the trend. The interest rate of its deposits with the three-month term has increased by 0.5 per cent to 7 per cent per year, while the interest rate of over 12-month deposits has climbed to 8 per cent per year.

Vietinbank has increased the interest rate of dong deposits with less three-month terms from 6 per cent to 6.5 per cent per year, and those with terms from 3 and 7 months to 7 per cent per year.

A similar situation is also seen at Vietcombank at which the interest rate of deposits with terms from 6 to 12 months has been raised to between 7 and 7.5 per cent per year. The rates of 6.5 or 6.8 per cent have been applied to deposits with terms from two to three months.

The deposit interest rate race at commercial banks seems more tense. After Techcombank has raised the interest rate of less 12 month deposits to 6.75 and 7.45 per cent per year.

While the banks are vying with each other to raise their deposit interest rates they have also made efforts to cut their lending interest rates, sometimes making them even lower than their deposit rates.

ABBank, for instance, has recently launched a VND1.5 trillion (US$70 million) preferential credit package with the interest rate of only 7.9 per cent per year for enterprises. The lending rate is only 0.4 per cent higher than the deposit rates of Oceanbank, Vietcombank and Techcombank.

On the occasion of its 20th anniversary, SHB has offered the lending interest rate of only 8 per cent for enterprises.

Meanwhile, OceanBank is lending household-based businesses at the interest rate of just 8.5 per cent per year, 1 or 1.5 percentage point higher than the popular deposit rates.

Some commercial banks are even ready to get loss when they offer consumer loans at the interest rate of just between 5.99 and 6 per cent per year to enterprises and individuals to help them buy autos and housing.

According to a CEO of a commercial bank in HCM City who declined to be named, the disparity between the lending and deposit rates now is under 3 per cent, much lower than the 5 per cent level in the previous time.

A source from the State Bank also says that the ceiling interest rate of 7 per cent is being applied for under 6-month deposits, down by 2 or 3 percentage points as compared with the rate recorded in early the year.

Meanwhile, the lending interest rate of 9 per cent is applied to the five prioritised sectors, down by 3 or 5 percentage points.

As a result, the interest rate spread between loans and deposits is only 2 per cent per year.

With such a small disparity, the banks' profit is predicted to significantly reduce while the banks will have to use a majority of it for the risk prevention fund (provision for bad debts), paying deposit insurance premiums, and other operating costs.

This also means that the banks would find it difficult to realise their profit targets set for the year.

Appetite for gold

On November 8, the State Bank of Viet Nam sold 14,800 gold taels of the 15,000 that it offered at its 69th auction. The remainder of 200 taels was par for the course, with previous auctions recording similar figures.

However, a representative of the SJC Company who did not want to be named, said trading in gold taels was very slow on those days.

His company was only trading between 700 and 2,000 taels each day, much lower than the 8,000 to10,000 taels recorded during the same period last year.

While people seem to have turned their back on gold, they have queued to buying gold jewellery in great quantity.

Many factors have contributed to this change from the long-standing habit of keeping savings in gold bars. One factor is the disparity between domestic and global prices of gold bullion is too large, often at over VND3 million, or even between VND5 and 6 million per tael.

Also, people cannot deposit their gold at banks, and the number of places where they can trade their gold bars has reduced significantly. So thousands of shops that once traded in gold bars now just sell jewellery.

"The people who are saying no to gold bullion are shifting to 24-carat gold jewellery, mainly gold rings.

This is because the price of pure gold jewellery is not so different from the global rate, and it can be easily sold at any gold shop," said Nguyen Van Dung, chairman of the HCM City Association of Fine Arts, Gold Jewellery, and Gemstone.

The owner of a gold shop in southern Long An Province's Ben Luc District also said that people's demand for pure gold jewellery had risen ever since the gold bullion market was tightened.

He said transactions related to gold bars in the locality decreased sharply and locals shifted to keeping their savings in pure gold rings.

The sharp decrease in demand for gold bullion suggests that the central bank should reconsider conducting less gold bullion auctions .

Some analysts say that the domestic gold market should be let to work as it used to, meaning enterprises should be allowed to continue importing the precious metal and the central bank should act as a manager of the market, not continue its current role as a gold trader.

They expect the central bank to face liquidity problems if it continues to auction gold. It would have to use a lot of dollars to import gold for auctions, and this could create a local shortage of the greenback.

In addition, when the central bank is directly participating in trading gold as it is doing now, it will face the risks associated by fluctuations in gold prices, as will the domestic gold market.

But there are others who still support the central bank's gold auctions.

They say that the auctions, held for nearly one year, has helped stabilise the gold market, and pushed domestic and global prices closer to each other. But they also feel that the frequency of such auctions should be reduced.

Export growth

Although Viet Nam, like many other countries, has faced innumerable difficulties because of the prolonged economic downturn, some domestic industries have still achieved remarkable growth rates, making positive contributions to recovery.

The textile and garment industry is among the industries that have led the country in boosting export values.

In the first 10 months of the year, it posted an 18.5 per cent year-on-year growth in export value, and expects to earn US$2.5 billion by the year-end.

Similarly, after the US International Trade Commission announced that Vietnamese shrimp products exported to the country did not have to face any anti-subsidy duties, that sector has shown strong signs of picking up.

In the first 10 months of the year, $10 billion worth of shrimps were shipped, making the greatest contribution to the entire seafood industry's total export value $5.38 billion.

Tra fish has also become a leading seafood export earner with shipments so far valued at over $1.23 billion.

Despite these success stories, the sectors are still struggling.

Enterprises exporting shrimp and catfish, for instance, face a severe shortage of materials for processing. Even in provinces that have large areas of shrimp farms, like Ca Mau Bac Lieu, Soc Trang and Kien Giang, local firms are not able to find enough raw material for processing.

Many seafood processing plants in these localities complain that they can only run at 40 to 50 per cent of their capacity.

According to a representative of the Ca Mau Seafood Processing Association, many Chinese enterprises came to Viet Nam and bought raw shrimps from farms in the delta, thus causing a shortage for local processors.

The shortage has pushed shrimp prices very sharply, imposing much higher costs on seafood exporters.

In fact, shrimp prices have recently increased strongly by VND40,000-VND50,000 per kilo, according to Bac Lieu Province's Industry and Trade Department.

Meanwhile, tra fish prices have surged VND4,000- 5,000 to VND23,500 and 24,000 per kilo.

From now until the end of the year, tra fish exporters will need about 300,000 tonnes of materials for processing, but the domestic market can supply only 50,000 tonnes, some reports say.

Explaining the shortage, analysts say that supply has become seriously short because farmers who incurred heavy losses in previous crops have left fish ponds idle.

In fact, many of them want to continue farming, but they cannot borrow capital from banks without repaying old debts.

Meanwhile, only 30 out of 70 tra fish processing establishments have their own farms, so the others have to rely on supply from individual farmers.

Seafood exporters need to do several things to deal with the situation, officials and industry insiders say.

They say the firms should develop their own production farms, source guaranteed quality raw material from other countries and effectively promote sales if they are to succeed in current market conditions. — VNS

Comments (1)

Máy bay mới hiện đại quá, mong là người khách đầu tiên!

Xuân Hồng - Wednesday, 01/07/2015, 16:40 Reply | Like