To attract capital from the public, many banks have applied new capital mobilisation forms through savings programmes offering rewards and special prizes such as apartments, cars or cash in the winners’ account.

Reality shows offering money as prizes causes real interest rates to increase and therefore, competition among banks remains a battle on interest rates.

In addition, banks have driven up interest rates through gradual increases in interest rates as more money is deposited, interest rates rise. Increases in deposit interest rates have impacts in three areas.
For depositors, they can limit their expenditure for a short period to benefit from deposited money.

For enterprises, they will have to consider whether or not they should borrow capital from banks to invest in projects, as interest rates must be repaid at rising levels. Therefore, ineffective projects must be abolished.

For capital borrowers, when faced with increasing business costs and reduced profits, they have to cut other expenses to enable them to compete effectively in the market.

In a recent meeting, the State Bank Governor Le Duc Thuy acknowledged that there is a paradox in the capital supply-demand relationship. Mr Thuy said while traders want to buy cheap goods, banks also want to mobilise cheap capital. However, due to the rise in consumer prices in recent times, Vietnamese banks have had to raise their interest rates to attract capital.

Why do all banks want to raise their interest rates? The answer is very simple. The demand for borrowed capitals among enterprises is increasing while the capacity to meet demand is limited. The government’s major projects have drawn a large amount of capital from banks. Besides this, such projects have hindered small and medium-sized enterprises and some households in access to capital. As the capital market in Vietnam develops, Vietnam’s commercial banks are increasingly burdened with supplying capital.

Some corporations and large enterprises have asked the Government to allow them to build cement and power plants, committing to mobilising capital resources by themselves. But when the government approved the projects, they turned to banks for loans. As a result, enterprises, especially corporations and big enterprises, have been forced to operate more effectively to service high interest rates from the banks. However, no one can be sure that such major projects will not suffer losses and wastefulness.