Lenders to struggle to make profits amid SBV's rising rates

Many lenders said their outcome this year would be lower on the central bank’s increasing reserve repurchase, refinancing and rediscount rates.

A man walks by a board read "free-floating saving rate" of a HCMC-base brach of Asia Commercial Bank. The increase in reserve repurchase, refinancing and rediscount rates will lower this year’s earning result, banks say (Photo:Minh Tri)

The State Bank of Vietnam this week raised the reserve repurchase, refinancing and rediscount rates to 12 percent per year in an effort to fight against inflation and keep commercial banks from cashing in on the deficit of the rates.

The move, however, is bad news to many lenders, who are making good use of the gap between the interest rates to earn big profits, financial experts said.

Earlier, large-cap banks could borrow money from the central bank with the low rediscount rate to invest in the government bond. They also could use the amount to loan out with higher interest rates.

Directors of banks said the increase would leave lenders paying high interest rates for loans from the central bank, pushing up the interbank and business lending rates.

They also added the overnight rate in the interbank market jumped to 19-20 percent per year after the central bank’s announcement.

“The interbank rate has actually moved up recently amid a shortage of capital, which came from the central bank’s withdrawal to curb inflation. It is now increasing more after the central bank’s move,” said an official of Ho Chi Minh City-based Orient Commercial Joint Stock Bank.

The central bank in late January decided to withdraw more than VND100 trillion (US$4.79 billion) out of a total VND132 trillion that it had lent credit organizations before Tet (Lunar New Year) to boost their liquidity.

Nguyen Van Giau, governor of the State Bank of Vietnam, said the withdrawal, which was set up dedicatedly earlier, was carried out only after deposit flow showed signs of recovery.

He also added commercial banks still could ensure their liquidity via interbank market and the open market operations, which offer stable interest rates.

Experts said the state bank’s restriction on loans for non-productive sectors also left some lenders struggling to quickly alter their lending structures.

The central bank instructed lenders to tighten loans on non-productive sectors this year, especially property and stock investments. Banks violating the instruction will have to set aside a strict required reserve rate, which is two times higher than the common one.

“Banks will have two options: raising their depositing rates, which will make them suffer the central bank’s punishment for breaking the rate cap of 14 percent per year or accepting the increasing interbank rate,” said an economist.

Many commercial banks said with state-owned lenders offering an average depositing rate of 13.1 percent per annum, joint-stock banks would have to set their rate at 16-17 percent.  

By Thanh Thien – Translated by Vu Minh

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