Deposit interest rates fall, people pour money into other investment channels

Commercial banks have reported a sharp drop in deposits as interest rates are now at their lowest level in 10 years and people are looking for other investment channels.

Some commercial banks eased interest rates on deposits slightly in early July. Sacombank cut interest rates by 0.2% for 1-36 month deposits and VP Bank by 0.18-0.2%.

According to the General Statistics Office (GSO), deposit interest rates are stable in the first half of 2021 after falling sharply in 2020.

Interest rates are 0.1 to 0.2% per annum for sight deposits and less than one month; 2.85-4 percent for 1-month and less than 3-month deposits; 3 to 4% for 3-month deposits, 4 to 6.25% for 6-month deposits, 4 to 6.4% for 9-month deposits and 4.7 to 6.8% for 12-month deposits month. The highest rates of 5-7% apply to deposits of 13-36 months.

Statistics show that interest rates on deposits have fallen by 1.5-2.5% over the past year. Many banks now only pay 3.1-3.3% per annum for a one-month deposit, the lowest in the past 10 years.

The Vietnamese Association of Financial Investors (VAFI) has proposed a gradual reduction in interest rates on Vietnamese dong deposits to zero percent. It indicates that the interest rate is used in many developed economies, while the less interest rates (banks charge fees for deposits) are applied in some other countries.

The policy keeps loan interest rates low, at 2-5% per annum, which helps stimulate the development of the trading system and the stock market and provides social protection for low-income people.

However, the proposal has not been defended by experts, who believe that it is not possible to apply the zero percent interest rate policy now.

They warn that such low interest rates would encourage depositors to withdraw deposits from banks and pour money into other investment channels. This will have negative effects on the economy.

Commercial banks have reported a sharp drop in deposits as interest rates are now at their lowest level in 10 years and people are looking for other investment channels.

The banking system could be in danger of running out of liquidity and the economy would lack capital for production, business and consumption. In this case, customers will have to compete for bank loans, which will drive up loan interest rates. Even if interest rates on loans do not increase, the unofficial costs that businesses have to pay to obtain loans will increase.

Analysts said banks can no longer cut interest rates on deposits. If they do, the money will leave the banking system and flow into other investment channels, including securities, real estate, gold, cryptocurrency, and usury.

Meanwhile, VN Direct predicted that the deposit interest rate would rise 0.25 to 0.3 percent in the second half of the year due to strong demand for credit and greater pressure on inflation. In principle, banks should maintain attractive interest rates to attract more deposits as they have to compete with other investment channels.

According to Vietcombank Securities, interest rates on deposits fell 0.3% in the first half and remained stable at low levels. He said interest rates would remain stable in the second half of the year or increase slightly by 0.1 to 0.2%.

As for loan interest rates, they are expected to fall further, but they will not be the same across the banking system. The State Bank of Vietnam recently asked banks to cut interest rates in July to help businesses weather the hardships caused by Covid-19.

Deposits are falling

According to the State Bank of Vietnam (SBV), while some banks attracted large deposits with a 10% growth rate in the first half of the year, others reported a decline in their deposits, although their loans still have increases. ABBank, for example, fell 7.4%, SeA Bank 4.7%, NCB 4%, Saigonbank 0.3% and PG Bank 0.2%.

While the growth rate of capital raised from the public was the lowest over the past nine years, capital raised from economic institutions was higher.

At the end of May, deposits from economic institutions had reached 5.03 billion VND, up 3.26% compared to the end of 2020, a record in 5 years. Meanwhile, public deposits reached VND 5.27 billion, up 2.6%.

It was the first time that the growth rate of deposits of economic institutions exceeded the growth rate of the public in January-May.

Previously, SBV reported that deposits of economic institutions at VND 5.26 billion were, in the first four months of the year, up 2.05%, the lowest growth rate compared to the same period of previous years. This figure was lower than the 2.34% growth rate of public deposits.

But the situation changed after May, with business deposits increasing by VND 59,121 billion, which was four-fifths of the total extra money deposited in the banking system.

The sharp rise in business deposits has been attributed to the impact of the Covid-19 pandemic. Fear of risk has led companies to deposit money in banks.

Meanwhile, public deposits are moving in the opposite direction with a slowdown growth rate since 2016.

The growth rates of public deposits increased from 11.04% in 2016 to 9.39% in 2017, 7.5% in 2018, 6.84% in 2019 and 4% in 2020.

The low interest rates on deposits were a major cause.

Tuan Dung

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