Hanoi (VNA) - The Vietnam Asset Management Company has decidedto hike its reference interest rate on bad debts to 9.9 percent from the fourthquarter, up from 9.7 percent.  

The rate is calculated based on the averagedeposit interest rates at the four State-owned joint stock banks, Agribank,BIDV, VietinBank and Vietcombank.

The reference rate determines the pay-offs in afinancial contract.

The average interest rate of the bankingsector’s four biggest players has shown signs of increasing in recenttimes.               

Vietinbank has the highest deposit interestrates and shows clear signs of hiking the rates.

Since the beginning of this year its depositsinterest rates have risen by 0.2-0.5 percentage points to 4.8-6 percent.

Other banks too have begun to hike depositinterest rates starting late last month.

VPBank, for instance, increased its rates by 0.2percentage points for six- to 11-month terms to 6.3-6.5 percent. Techcombank’srates for deposits of four to six months are up 0.2-0.3 percentage points to5.3-5.7 percent.        

Normally, banks hike interest rates in the lastfew months of the year when demand for credit often increases ahead of the peakshopping season, and has a knock-on effect on deposit rates.

But the hikes were not expected to happen thisyear because the State Bank of Vietnam had made great efforts to keep themsteady by keeping its interest rates lower and improving banks’ liquidity. Butits efforts are seemingly in vain.   

The central bank recently announced severalpolicies following the Government’s demand to cut interest rates.

In July it cut several key benchmark rates suchas refinance rates, discount rates, the rate on overnight loans, and lendingrates for priority sectors.  

It also bought foreign exchange to improve itsreserves, which helped improve banks’ VND liquidity.

The central bank’s moves have partly contributedto reducing the interest rates on the bond and inter-bank markets. But they didnot affect the deposit interest rates.

Analysts have expressed concern that the hikesin deposit interest rates will make it difficult to achieve the Government’splan to further cut lending interest rates by 0.5 percent to supportenterprises.

Many analysts attributed the hikes in depositinterest rates to the rising inflation rate and credit demand.

They said individuals often decide to deposit inbanks based on the inflation rate.

In the first seven months of the year priceswere quite steady, sometimes even declining. But in recent months they havebeen trending upward, rising to 3.9 percent, almost reaching the full-yearinflation target of 4 percent.

In August the prices of 10 out of 11 groups ofcommodities increased compared to July. Drugs and health services registeredthe highest increase of 2.86 percent. Transport was up by 2.13 percent, foodand catering services by 1.06 percent, housing and construction materials by0.93 percent, and education by 0.57 percent.

The General Statistics Office has predicted thatfuel prices will continue to rise until year-end, affecting the prices ofseveral essential goods.

In its recently updated ”Asia prospect” report,the Asian Development Bank (ADB) adjusted its forecast for Vietnam’s averageinflation rates to 4.5 percent this year and 5 percent next year.

The Government’s recent loosening of creditpolicy to hike the credit growth target to over 20 percent from the earlier 18 percentis another important reason for the increase in inflation.

The increase in the deposit interest rates alsois due to the pressure from the foreign exchange market.

The demand for foreign exchange, particularly fromimport firms, often increases at the year-end ahead of the peak shopping andfestival seasons. This pushes up the value of the greenback against the VND. Tohold on to their deposits, banks then have to hike interest rates on VNDdeposits.-VND