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Depositors unhappy about SVB’s decision to cap interest rate   2011-03-16 - Viet Nam Net

People now do want to deposit their money at banks any more because of the low interest rates which cannot cover the inflation rate. Experts believe that they will pour money into the real estate market instead of banking their savings.


In the morning of Friday March 11, Hanh, who lives on Thuy Khue street in Hanoi, came to a branch of a joint stock bank to deposit money. There she was told by an officer that under the newly released regulations, if Hanh withdraws money before the deposit matures, she will only be able to enjoy interest rates for demand deposits. The statement surprised Hanh because previously the bank calculated interest rates based on the actual number of days it had been deposited.


When Hanh asked the officer if there are any promotion programs being offered to depositors, the officer affirmed that all the depositors can receive is an interest rate of 14 percent per annum, because the bank is not allowed to offer any preferences or gifts to depositors.


“Things are quite different now. We are not allowed to offer any gifts or bonus interest rates to clients. If we violate the regulations stipulated by the State Bank, our director will be sacked, while our branch will be forced to shut down,” the officer added.


Hanh decided not to deposit the sum of money. “The inflation rate is so high. We make deposits to preserve our assets and seek profit. Why does the State Bank have to prohibit commercial banks from paying high interest rates to us? Hanh questioned.


Hoa, a retired man on Doi Can street in Hanoi, complained: “I heard that some economists said it is necessary to force the interest rates down in order to rescue businesses. However, who will save us, when the consumer price index keeps rising?”


“We are retirees and we live on the interest rates from our deposits. Meanwhile, the sums of money collected from interest on our deposits have become smaller and smaller,” he added.


In an effort to force interest rates down to make it easier for businesses to access bank loans, the State has decided that commercial banks must not offer deposit interest rates higher than 14 percent per annum. In the latest move, it disciplined two bank branch directors for setting up high interest rates.


Commenting on the decision by the central bank, the general director of a joint stock bank said there are always two sides of a coin and that the policies cannot satisfy everyone. Curbing inflation and stabilizing monetary policies are the priorities for now and Vietnam needs to sacrifice many things to achieve its long term goals. The director said that small banks and depositors will suffer from the new regulation.


Meanwhile, General Director of a big bank in HCM City said that depositors nowadays expect overly high interest rates. “If the inflation rate is 12 percent, the reasonable deposit interest rate should be 14 percent per annum. The interest rates in Vietnam are now abnormally high if compared with other countries in the world,” he said.


He went on to say that in China and the US, banks are mobilizing capital at interest rates which are lower than the inflation rates. However, the director thinks that it would be better to use monetary tools to force interest rates down than to order commercial banks not to set high deposit interest rates.


Meanwhile, analysts have warned that once deposit interest rates are too low, people will no longer deposit money at banks, which may lead to a serious shortage of capital. Instead, people will inject money in the real estate market, thus pushing the real estate prices up. If so, the so called “real estate bubble” will take shape again.


The black dollar market has halted transactions for some days, while the State Bank is attempting to eliminate the trade of bar gold on the market. As the two favorite investment channels for Vietnamese people are now stuck, analysts believe that Vietnamese people will pour money into the real estate market.

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