Perilous Interest Rates Irk Borrowers, Please Savers

Interest rates have already been pushed up three times since the beginning of the year. (Photo: TC)

Increasing commercial bank interest rates in Ho Chi Minh City are dangerous for the business economy and have brought dismay to borrowers, but savers are happy as the trend is expected to continue.

Higher borrowing costs for borrowers and higher incomes for savers are predicted to continue as Viet Nam’s commercial bank interest rates have risen from 8 percent to 9.72 percent on the Vietnamese dong and from 4 percent to 4.8 percent on the US dollar in the first eight months of 2006.

Most of the commercial banks in Ho Chi Minh City are rushing to offer higher bank rates, not due to short money supply, but because of fierce bank competition.

Rates are high but money supply is abundant and growing as previously, some savings banks announced higher interest rates aiming to increase their money supply.

This move has driven others to do the same, increasing rates across the board to keep old clients and lure more savers.

As the year’s end approaches, banks will continue raising their rates as the end of the year is high-borrowing season for business that need to pay salaries and bonuses without the option of going into debt. 

The increase in rates will also draw more customers wishing to earn off their savings.

Growth of fears

Interest rates have already been pushed up three times since the beginning of the year and are only expected to continue increasing and applying intense pressure on borrowers and businesses.

This means that borrowers will not only have to face a higher lending rate, but also inflation. 

“Competition will stimulate banking growth,” said an official from the state bank of Viet Nam. “However, using high rates to swell the money supply is not a good idea as businesses and the economy will suffer in the long run.”

By Diu Ngan - Translated by Van Hanh

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