Commercial banks have recently purchased government bonds, even though the bonds offer low interest rates at a little bit higher than 12 percent per annum. Meanwhile, banks have to pay much higher interest rates for deposits.
The current ceiling deposit interest rate is 14 percent as stipulated by the State Bank of Vietnam. However, in fact, commercial banks have to pay much higher than 14 percent in order to attract deposits. Local newspapers have reported that the actual deposit interest rates once climbed to 19 or 20 percent.
Though the interest rates have decreased slightly recently thanks to the easing consumer price index (CPI), increased in the last two months, the rates remain high at 17 percent.
No commercial bank has made announcement about the actual deposit interest rates they apply. However, analysts believe that if banks use the capital they mobilize from the public (deposits) to buy government bonds, they would incur the loss of three percent per annum at least.
A question has been raised that why commercial banks keep purchasing government bonds if the bond interest rates are lower than the capital costs?
A director of a bank explained that the capital of banks comes from different sources which have different terms and interest rates. If banks can use the mobilized capital effectively, they would still be able to make profits and would not incur loss. The average interest rate could be lower than the highest deposit interest rate.
According to Vietinbank, in the first six months of the year, the bank mobilized 357 trillion dong in capital, while the outstanding loans were 257 trillion dong only; which means that the ratio of credit on mobilized capital of the bank is still much lower than the allowed ceiling level of 80 percent.
This means that the bank is now under the pressure of finding the “outlets” for the mobilized capital. And purchasing government bonds proves to be a solution.
A banking expert has commented that purchasing government bonds should be seen as a wise move to ease losses, when banks cannot find the borrowers. If holding government bonds, commercial banks would be able to enjoy interests, while they can convert the bonds into cash for making payment at any time.
In principle, in order to ensure solvency, commercial banks need to put 20 percent of mobilized capital into the reserves for payment. It would be better to keep 10 percent in cash and 10 percent in government bonds, instead of holding the 20 percent in cash.
Some bankers have agreed that it the current circumstances, holding a certain volume of government bonds would help banks better prevent liquidity risks.
Experts have pointed out that the 12 percent interest rate of the bonds does not mean loss to banks. In fact, as the bonds will come matured in five years, banks still can expect good profits if the market interest rates go down in the next years.
It is clear that commercial banks hope the market interest rates would go down in the near future. That explains why banks only accept to pay high interest rates for short term (1-2 month) deposits, while longer term deposits do not catch the special attention from banks.
Commercial banks once paid 18.5-21 percent per annum for 1-2 month term deposits, while no bank accepted to pay more than 16 percent per annum for 1-2-5 year term deposits.
Besides, banks believe that once the State Bank changes its monetary policies, the interest rates would go down.
“If the State Bank decides to loosen the monetary policies, commercial banks would be able to borrow money from the central bank at low re-discount rates. Therefore, banks may incur loss now, but they would make profits in long term,” a banker said.