The central bank said partly private lenders have also increased rates by 0.1-0.3 percentage points on dong deposits and by 0.1-0.2 percentage points on dollar deposits.

 

The Vietnam Banks Association, which groups 52 local lenders, said in a report last month that its member banks had agreed to keep interest rates stable for the remaining months of the year, ending a deposit rate race starting mid August. But commercial banks now say they cannot keep rates unchanged if other lenders raise theirs. Moreover, banks also need to raise more funds to prepare for another loan subsidy program next year that the government is considering.

 

Duong Thu Huong, general secretary of the Vietnam Banks Association, said the recovery of the local stock and property markets had forced commercial banks to raise rates to retain depositors.

 

Some banks even offer to pay 10.5 percent per year, the maximum rate allowed now, but they still find it hard to attract customers, Huong said.

 

The State Bank of Vietnam said it plans to hold its benchmark base rate at 7 percent for the rest of the year, which also means the 10.5 percent cap would stay unchanged. The base rate has been set at 7 percent since February.

 

Ho Huu Hanh, director of central bank’s branch in Ho Chi Minh City, said local lenders are trying to compete with each other by raising their deposit rates even when the state bank has decided to keep the key rate stable. Right now, liquidity at banks is at a good level, but they have to be careful because the ongoing interest rate competition would have negative impacts on their operations and the economy as a whole, Hanh said.

 

Experts said if banks keep raising rates to attract depositors, funds for lending will eventually become more expensive, driving up production costs and dampening economic growth.

 

The State Bank of Vietnam said in a report Tuesday (06 Oct 2009) that total funds in the nation’s banking system as of the end of September increased 21.7 percent from the end of last year.

 

Business loans rose about 28 percent while total deposits increased by 22.45 percent over the period, the central bank said.