Banks have to mobilise long-term capital at high costs by issuing certificates of deposit (CD) in Vietnamese dong with high interest rates to lure depositors, causing concerns about a domino effect on lending rates.

Currently, many banks are in a dire need of long-term capital as their ratio of medium- and long-term capital in the total remains limited. Meanwhile, according to State Bank of Vietnam (SBV) regulations, banks must reduce their short-term funds for medium- and long-term loans to 40 percent from early this year against last year’s rate of 45 percent.
In addition, banks also need more capital to meet a capital adequacy ratio (CAR) of 8 percent in 2020 as per the SBV’s Basel II norms. Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost 20 billion USD to meet Basel II implementation.
According to experts, in the current context, the most effective and rapid measure to help banks meet the central bank’s regulations is to increase long-term deposits by raising interest rates to attract depositors.
However, experts are also concerned that the rate hike of deposits would cause a domino effect on interest rates of long-term loans./.
Source:VNS/VNA