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Relief is in sight for small banks, but they must remain on guard
Smaller players in the country’s banking sector have been suffering since the State Bank applied a ceiling Vietnam dong mobilisation interest rate of 14 per cent for all banks in early September.
Although the interbank lending rate has come down from October’s heights of 30-40 per cent to a more stable 14-15 per cent for a one-month term, many observers said this low rate could be put down to the fact that most transactions were made between mainly large banks with collateral.
Small banks, meanwhile, have stayed on the sidelines because the higher rates are beyond their means. “Many banks had an abundance of capital but were afraid of lending on the interbank market, thus they could lower their prices if borrowers had prestige or collateral,” said Luu Hai Yen, an analyst at Thang Long Securities.
But if the mobilisation rate was to fall again, small banks could continue to be the first to bear the brunt of deposit withdrawal pressure, making them incur even more serious liquidity problems.
According to banking expert Nguyen Tri Hieu, if the mobilisation rate was set at 12 per cent, banks would have to resort to sourcing capital from the interbank market again and lending rates on the interbank market would be higher.
Then there was the seasonal pressure as demand grew to withdraw cash for the Tet lunar new year holiday. In addition, banks also needed cash in hand to offer their employees Tet bonus.
“Thus, at year-end, banks are really in need of capital. Therefore, it is not appropriate to reduce the interest rate cap this time,” said Hieu.
Tong Minh Tuan, manager of BIDV Securities Company research, said a further lowering of the deposit interest rate ceiling would result in small banks not being able to compete with major banks.
“In addition, the shortage of mobilised capital will lead to the possibility of compulsory mergers for small banks,” said Tuan.
“The lending interest rate level cannot be cooled by administrative measures. In other words, such measures [being imposed] will not be able to lower the lending rate level when the money supply is still being tightened,” he said.
In the second week of December, the interbank interest rate slightly increased by 1-2 per cent week-on-week. The overnight interbank interest rate was 16 per cent. The rate applied for one-week and two-week terms were 17 per cent and 18 per cent respectively, according Bao Viet Securities.