Though the State Bank of Vietnam has stipulated that the deposit interest rates must not be higher than 14 percent per annum, many depositors still acquire higher interest rates for big sums of deposits, if they successfully “bargain” with commercial banks which they believe are very thirsty for capital.

Interest rates can be negotiated

At a bank branch on Luy Ban Bich Road in the Tan Binh District in HCM City, a man hesitated before making decisions what to do with the sum of deposit of 300 million dong which  matured. The bank officer tried to persuade him to deposit the sum of money at the bank again. She said that besides the interest rate of 14 percent per annum, the depositor would still get additional bonus interest rate.

“With 300 million dong to be deposited, you will get 500,000 dong more a month, which is equal to the two percent per month interest rate,” the officer said.

After the man left, Saigon Tiep Thi’s reporter, who acted as a depositor, asked the same officer about the interest rate, and was told that he will get the interest rate of 14 percent per annum, which is equal to the ceiling interest rate set by the State Bank. When the depositor mentioned the bonus interest rate, the officer explained that he needs to make a one month deposit first, and then the bank will consider giving bonus interest rate when the deposit matures.

At another bank branch on Phan Dang Luu Road in the Phu Nhuan District, the reporter realized after talking with a man, that the man has a one month deposit at the bank with the negotiable interest rate of 20 percent per annum. As the one month ended, the man was waiting to meet the accustomed officer to ask about the new interest rate.

Another client, a woman, told Saigon Tiep Thi’s reporter, that last week she decided to make a 3 month deposit at a big bank at the interest rate of 18 percent per annum. She said another bank offered a higher interest rate at 20 percent, but she feared that she would have to wait if she wants to withdraw the money.

As the State Bank has set up a cap of 14 percent per annum on interest rates, commercial banks have to offer the same interest rate of 14 percent for all terms of deposits in order to lure depositors. As a result, depositors would rather make short term than long term deposits.

While banks can only mobilize short term capital, they need long term capital to lend. Therefore, in many cases, banks find it difficult to balance the mobilized capital and the capital to lend. As banks are thirsty for capital, they have to negotiate with depositors about interest rates to lure more capital.

The discriminatory treatment

Commercial banks would offer the deposit interest rate of 14 percent per annum to unfamiliar clients, who deposit less than 100 million dong. However, loyal clients, who deposit 300 million dong or more would enjoy another interest rate mechanism with preferences.

A director of a private company specializing in importing and distributing refrigeration products in the Go Vap district in HCM City, said “that though he had a big sum of capital, he still wanted to borrow more money to expand business. However, the bank he contacted said it would only provide loans if he accepted to pay the high interest rate of 26 percent per annum. When the director decided not to borrow money, the bank tried to persuade him to deposit his money at the bank, saying that “loyal clients can negotiate deposit interest rates with the bank’”

When informed that people can deposit at his bank at the interest rate of 16-16.5 percent per annum, the director of a joint stock bank said that at this moment, those people, who have idle Vietnam dong, have big advantages in negotiations. The director said that in some cases, his bank has to accept to pay high interest rates in order to retain depositors, or they will withdraw money to make deposits at other banks. He added that there is no other choice, because banks need to stabilize their capital sources.

Source: SGTT