VietNamNet Bridge – The State Bank of Vietnam (SBV) has decided to increase the compulsory VND reserve rate applicable to banks, and the decision seems to have been unexpected by banks.
The rate is up from 5% to 10% for non-term and under-12-month Vietnamese dong savings at State owned banks, rural commercial banks, joint venture banks, foreign bank branches, and finance firms. For the Bank for Agriculture and Rural Development of Vietnam (Agribank), the rate is 8%.
The decision, according to SBV, aims to help curb inflation this year. However, it seems to unsatisfactory to banks, as the news came unexpectedly.
With the new compulsory reserve rate of 10% (if a bank mobilises VND10 in capital from the public, it will have to make a deposit of VND1, or 10% of VND10 at the central bank, and can only lend the other VND9).
An official from SBV said that the capital at banks was now superfluous; therefore, it would be better for banks to make deposits at the central bank. Commercial banks will get interest for the deposits, which is better than leaving the capital idle and unprofitable. Moreover, raising the compulsory reserve rate can be considered a suitable tool aiming to stabilise currency value.
In fact, over the last one year, when commercial banks all reported excess of usable capital, they tried to give more loans. The statistics showed the credit growth rate of 30% in the first quarter of the year. In February and March, the credit growth rates were reportedly very high, at 6% per month.
“The required higher compulsory reserve rate will force banks to keep cautious when giving loans,” the official said.
Nevertheless, experts have pointed out that in the long term, when capital become scarcer, the high compulsory reserve rate will have the reverse impact, as this will make banks’ expenses higher. With the high compulsory reserve rate, banks will have less capital to lend production and business, because their capital is deposited at the central bank.
According to many bankers, the central bank should have consulted with commercial banks before making a decision.
The director of a joint stock bank said that the excess of capital only happened with State owned banks and not joint stock banks. Therefore, the move by SBV would have bad impacts on joint stock banks’ operations. He stressed that the 30% credit growth rate is not big, and it is not necessary to curb the credit growth rate by requiring higher compulsory reserve.
“There are two most important tasks that the central bank needs to harmonise: curbing inflation, and capitalising the national economy,” the director said. The new compulsory reserve rate: | | VND bank deposits | Foreign currency bank deposits | | Credit institutions | Demand deposits and less-than-12-month term deposits | 12-24 month term deposits | Demand deposits and less-than-12-month term deposits | 12-24 month term deposits | | State owned commercial banks (not including Agribank), urban joint stock banks, joint venture banks, financial companies, finance leasing companies | 10% (5%) | 4% (2%) | 10% (8%) | 4% (2%) | | Agribank | 8% (4%) | 4% (2%) | 10% (8%) | 4% (2%) | | Rural joint stock banks, cooperation banks, central credit funds | 4% (2%) | 4% (2%) | 10% (8%) | 4% (2%) | Note: The figures in brackets are the previously applied rates (Source: DTCK) | 
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