Some banks have launched promotional progammes including gifts and cash bonuses on deposits. The competition for deposits among commercial banks, especially smaller banks, was likely to heat up in the coming months, according to a Thoi bao Kinh te Viet Nam (Vietnam Economic Times) report.

High deposit interest rates would have a negative impact on businesses relying on commercial bank loans to finance production, since commercial banks were likely to shift lending to higher-risk, higher-interest loans, such as consumer and real estate loans, said Viet Nam Banking Association general secretary Duong Thu Huong.

Most banks were currently offering loans at 18 -20 per cent per year to individuals, and up to 22 per cent for loans without collateral. Meanwhile, business loans were only fetching banks interest of 16-19 per cent per year. As commercial banks were in a growing frenzy of competition to attract customer deposits, their lending interest rates were also soaring dramatically, stirring fears that lending would slow and banks would fail to meet their credit growth targets for the year.

"The latest deposit interest rate war has been triggered by a shortage of capital among banks, said the sennior officer of the State Bank of Viet Nam.

In an effort to ease the war, the State Bank has urged credit institutions to engage in healthy competition.

At a meeting last week, State Bank deputy governor Tran Minh Tuan said that with the nation's inflation of the year expected not to surpass 10 per cent, deposit interest rates should remain below 13 per cent, while lending interest rates should be only 14-15 per cent.