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Vietnam’s banks face borrowing cost rise as deposits dip

by Riah Marton
in Leadership
Vietnam’s banks face borrowing cost rise as deposits dip
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VIETNAM’S banks face higher borrowing costs after deposits in the country’s banking system registered a first monthly decline in more than two years, while inflation is rising.

Banks are responding by offering higher interest rates on deposits, which could in turn lead to pricier loans, posing a challenge to government efforts to boost credit growth, which is crucial to getting economic growth back on track.

Can Van Luc, a government adviser and an economist at the Bank for Investment and Development of Vietnam, said banks were seeking to shore up their deposits in anticipation of rising demand for loans during the rest of the year.

State media reported an average increase of up to 0.3 percentage points in interest rates on bank deposits in the first week of May. Mirae Asset, a broker, said more than 10 banks had recently raised interest rates on deposits.

Corporate deposits at banks as of end-January fell by about 2.4 per cent from the end of last year to 6,670 trillion dong (S$357.1 billion), while deposits by individuals fell 0.5 per cent to 6,500 trillion dong, the latest central bank data showed.

This was the first monthly fall in more than two years, State Bank of Vietnam (SBV) data showed.

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The SBV is targeting credit growth of 15 per cent for this year, but lending by banks by the end of March rose by only 1.3 per cent from December. Credit growth in Vietnam often accelerates in the second half of the year when demand picks up.

Depositors have seen several rounds of cuts in interest rates over the last year, as banks faced higher risks and a surge in bad debt from prolonged real estate sector turmoil.

Vietnam Technology and Commercial Joint Stock Bank on Wednesday (May 8) raised its rates on all deposit terms by 0.1 to 0.4 percentage points, a bank employee said. This raised its rates on short-term deposits to 4.55 to 4.95 per cent.

Consumer prices in April rose 4.4 per cent from a year earlier, Vietnam’s General Statistics Office said, rising closer to the SBV’s 4.5 per cent inflation ceiling for the year.

The SBV, which last cut its refinance rate and discount rate by 50 basis points to 4.5 per cent and 3 per cent, respectively, in June last year, did not respond to a request for comment. REUTERS

Tags: BanksBorrowingCostDepositsDipFaceRiseVietnams
Riah Marton

Riah Marton

I'm Riah Marton, a dynamic journalist for Forbes40under40. I specialize in profiling emerging leaders and innovators, bringing their stories to life with compelling storytelling and keen analysis. I am dedicated to spotlighting tomorrow's influential figures.

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