Vietnam Money-Dong funds build up as rates rise

HANOI, May 26 (Reuters) - Commercial banks in Vietnam have started building up surplus funds in the Vietnamese dong VND= as higher deposit rates lure depositors but are still short of dollar funds, bankers said on Monday.

Last Monday, Vietnamese banks raised interest rates after the central bank removed a 12-percent ceiling on dong deposit rates and raised three other key rates to fight a surge in inflation.

"So far there has been a surplus of working capital at banks," the State Bank of Vietnam, or the central bank, said in a money market review for the week ending last Friday.

The review said state-run and foreign banks had a higher dong fund surplus while joint-stock banks had lower surplus.

Banks offered different ways to boost dong funds, from giving 15 percent per year to working extra hours on Saturday to better serve clients, they said.

As banks pay higher rates on deposits, they have also started raising rates on lending to around 18 percent per year.

On Monday, major lenders raised the rates on overnight dong loans on the interbank markets to 10-13 percent, from 9-11 percent a week ago. They charged the six-month dong loans at between 13-16 percent, up from 10-14 percent a week ago VNIBOR.

Several foreign banks already offered their six-month and 12-month loans at 18 percent.

Last week, the central bank set the base rate for dong deposits and loans at 12 percent and said banks could offer rates of up to 18 percent.

Sacombank STB.HM, Vietnam's sixth-largest lender by assets, said it raised dong-deposit rates of up to six months to between 13.62-13.86 percent to attract "free funds kept by the public and in line with corporate business plans in the short term".

The rate hike also contributed to stabilising market rates and preventing funds from being shifted from one bank to another, said the Ho Chi Minh Stock Exchange-listed bank.

To help banks boost liquidity, the central bank said it extended buying short-term debt papers worth 31 trillion dong from banks via open market transaction last week at interest rate of 12 percent per year.

Meanwhile, as Vietnam reported a widening trade deficit, banks continued to face dollar shortages, the central bank's review said.

Vietnam estimated its trade deficit in the first five months of the year would be $14.4 billion, more than three times higher than in the same period of last year after a jump in imports, state media reported on Monday [ID:nHAN279211].

The central bank allowed the official exchange rate to rise to 16,051 dong per dollar on Monday, the highest in nearly three months since Feb. 28 when the greenback stood at 16,052 dong.

On the foreign exchange market, the dollar hit 16,210 dong, the highest since Sept. 19, 2007 when it stood at 16,226 dong. (Reporting by Ho Binh Minh; Editing by Valerie Lee)