Transactions are carried out at the Viet Nam International Commercial Joint Stock Bank. Commercial banks are stepping up the race to raise interest rates on dong deposits. — VNA/VNS Photo Tran Viet

HD Bank on Tuesday increased its yearly interest rates by half a percentage point on term deposits of more than 12 months. With the increase, the HCM City-based lender currently pays a top rate of 10.1 per cent for three-year deposits, currently the highest among that offered by commercial banks.

Earlier, Nam Viet Bank pushed up its yearly interest rates on three-year deposits of at least VND1 billion (about US$56,000) to 10 per cent.

An Binh Bank last week also began offering dong depositors a yearly interest rate of 9.99 per cent on one-year deposits of at least VND999 million ($56,000), or 900-day deposits of VND99 million ($5,600).

The State Bank of Viet Nam, meanwhile, has issued its weekly report showing that interest rates on dong deposits rose an average of 0.2-0.4 per cent per year in the week ending June 10. Interbank rates also surged, with yearly and overnight rates reaching 8.37 per cent and 5.97 per cent, respectively.

The 10-per-cent rate being offered to depositors by commercial banks is bumping up against the current lawful ceiling rate. The current benchmark rate is 7 per cent, and commercial banks are allowed to pay interest at up to 150 per cent of this rate, or 10.5 per cent. Meanwhile, they can charge interest of up to 16.5 per cent on consumer loans.

State Bank figures showed that credit growth was higher than deposit growth. In May, credit was up 4.86 per cent month-on-month and 11.6 per cent from the end of 2008, while deposits grew only 3.74 month-on-month and 9.88 per cent over last year.

VIB Bank deputy director Tran Hoai Nam said high credit growth and a recovery on the securities market in May had increased demand for dong. Moreover, less money was flowing into banks than into other investment channels, including securities and real estate, began to show signs of recovery, Nam said, leading commercial banks to adjust interest rates to attract more deposits.

However, some banks were facing difficulties by continuously raising interest rates. With a modest gap between interest rates on deposits and loans, commercial banks were facing narrower profit margins.

Further compounding the problem, a State Bank representative recently told the Viet Nam Business Forum that the Government and businesses had recently urged the State Bank to cut the benchmark rate to reduce lending interest rates. The State Bank has so far declined to make the move. — VNS