Lowering deposit interest rates to stimulate credit demand

(Baonghean) -Along with the downward price trend (CPI in Nghe An decreased by 0.06% compared to the previous month), currently, several large banks in the province have shown signs of lowering deposit interest rates. This is also the basis for lowering lending interest rates, bringing capital into the economy, stimulating credit demand which is facing many difficulties.

Vietcombank is the first bank in Nghe An to "fire a shot" to reduce deposit interest rates on March 20. The adjustment of VND deposit interest rates at Vietcombank Vinh is quite strong, down 1%/year compared to before. Specifically, according to the newly adjusted listing, VND deposit interest rates at Vietcombank Vinh have simultaneously decreased by 1%/year for long terms, from 12 months or more, from the previous level of 10.5%/year to 9.5%/year. For short terms, currently subject to a maximum ceiling of 8%/year, Vietcombank Vinh also slightly reduced by 0.5%/year for terms of 1, 2 and 3 months, to 7.5%/year; terms over 3 months including: 4 months, 6 and 9 months remain at 8%/year. This is the second reduction in deposit interest rates by Vietcombank Vinh branch since the beginning of 2013. In addition to Vietcombank Vinh branch, Agribank Nghe An branch is also maintaining an interest rate of 7.8%/year for short terms; SHB Nghe An branch has reduced interest rates for terms over 12 months from 11% to 10.5%/year...

Transaction activities at Vietcombank
- Vinh branch.

Currently, in the whole system, the interest rates of commercial banks are commonly at 1-2%/year for non-term deposits and deposits with terms of less than 1 month, terms from 1 month to less than 12 months are about 7.8 -8%/year, terms from 1 month to less than 12 months are about 10-11%/year. However, while some banks maintain the mobilization interest rate at 7.5 - 7.8%/year for short terms, many joint stock banks in the area are maintaining the rate of 8%, even 11-12%. At Sea Bank (on 3/2 Street - Le Nin Avenue), they are implementing the promotion program "Golden Luck Savings" with 100 million VND deposited for 1 year, customers will be given 0.5 tael of gold with a total interest rate of up to 11.3%.

Talking about the paradox that some banks are lowering interest rates while others are still offering promotions, quietly increasing deposit interest rates, Mr. Nguyen Sy Minh - Head of Accounting Department of SHB Bank, Nghe An branch analyzed: Lowering interest rates is inevitable because not only market 1 but also market 2 - the interbank market is saturated. Currently, capital transactions in the interbank market mainly take place between banks in the G12 group. These banks are all in a state of excess capital, so lowering interest rates is inevitable. As for small banks, even if they have liquidity difficulties, they cannot borrow capital in this market without collateral.

The reason for this decrease is that while mobilization is still increasing steadily, output is difficult, in a state of stagnation, and some banks even have "negative" outstanding debt.

Along with the reduction in deposit interest rates, since the beginning of the year, VCB Vinh has adjusted lending interest rates down three times in a row, bringing the normal lending interest rate for VND to 13%/year (2% lower than the SBV's lending ceiling of 15%). For small and medium-sized enterprises, VCB Vinh's normal short-term business interest rate is 11.5%/year, while the SBV's interest rate ceiling according to Circular 33/2012/NHNN dated December 21, 2012) is 12%/year. For foreign currency loans (USD), the normal lending interest rate is only 7%/year. In particular, for export enterprises with foreign currency income, VCB Vinh only applies an interest rate of 4.8%/year. In the condition that the exchange rate tends to remain stable in 2013, borrowing foreign currency with low interest rates has had a great supporting effect for businesses.

The trend of decreasing mobilization interest rates is clearly shown when mobilized capital increases but lending is difficult, showing signs of excess capital. According to the State Bank of Vietnam, Nghe An branch, in the first quarter of 2013, mobilization in the area is estimated at 48,400 billion VND (of which savings deposits from residents are 40,500 billion VND), an increase of 9.7% compared to the beginning of the year, while lending reached 78,500 billion VND, an increase of only 1.3 -1.4% compared to the beginning of the year. Mr. Diep - Head of the General Department of the State Bank of Vietnam, Nghe An branch said: Because capital output is difficult, banks depend on the structure of mobilized capital and outstanding debt to reduce mobilization interest rates or maintain the ceiling of 8%/year. Currently, because the structure of short-term capital is too large, it is very difficult for banks to be proactive in long-term investment. Regarding the current move to reduce deposit interest rates by some banks, Mr. Diep said that there is still no directive from the State Bank, but some large banks are reducing deposit interest rates.

Thus, along with the decrease in the CPI in the month, this interest rate reduction is considered appropriate and therefore, without waiting for the State Bank to make an official decision, commercial banks are also reducing their deposit interest rates to suit the mobilization - lending situation as well as the business environment in the area. Reducing lending interest rates will help reduce costs for businesses and the economy; people will also direct capital to investment in production and business instead of saving.

Article and photos: Thu Huyen