Deposit interest rates have fallen to a record low.

In just the first 10 days of March, banks are "watching each other" and lowering interest rates by another 0.2-0.4% per year.

Among the banks lowering savings interest rates to the lowest level is the Agricultural and Rural Development Bank (Agribank), with a slight reduction of 0.1-0.2% per year depending on the deposit term. Specifically, the interest rate for a 1-month deposit term was reduced by Agribank from 4.3% per year to 4% per year. The interest rate for 12-18 month deposits at this bank was adjusted down by 0.1% per year, to 6.2% per year. For terms over 18 months, the rate was further reduced by 0.2% per year, to 6.3% per year.

Banks are once again cutting interest rates. (Illustrative image)

Vietnam Export Import Commercial Bank (Eximbank) has adjusted interest rates downward twice, with a total reduction of 0.2-0.4% per year.

Eximbank also has the strongest interest rate reductions across all maturities in the market today.

Specifically, for savings deposits with monthly interest payments, the interest rate for a 2-month term at this bank is 4.5%/year, for 3-5 months it is 4.7%/year; for 6 months it is 5.3%/year and for 12 months it is 5.9%/year. However, for the same deposit amount, if the customer receives interest at the end of the term, the interest rate will be about 0.2%/year higher. A striking feature on Eximbank's interest rate schedule is the preferential interest rate of up to 7.5%/year for 13-month term deposits with interest paid at the end of the term. This interest rate is comparable to many smaller joint-stock commercial banks in the market.

For a long time, Vietcombank and BIDV have been the two leading banks in interest rate reductions. However, in this latest interest rate adjustment from the beginning of March, there has been no movement from these two "giants". Vietcombank's most recent interest rate adjustment took place on February 9, 2015, with the lowest interest rate for a 1-month term at 4%/year and the highest interest rate at 6.2%/year for deposits over 24 months.

Currently, Vietcombank and Agribank hold the "record" for the highest listed interest rate for 1-month deposit terms, at only 4% per year.

At Techcombank (Vietnam Technological and Commercial Bank), deposit interest rates for fixed terms have also been adjusted down by 0.2 - 0.3% per year. Specifically, from March 4th, the interest rate for 1-month deposits at this bank was adjusted down from 4.6% per year to 4.4% per year; the 3-month rate decreased from 4.85% per year to 4.55% per year; and the 6-month rate decreased from 5.25% per year to 5.02% per year.

Also among the joint-stock commercial banks that have recently reduced interest rates, DongABank's interest rate schedule has been further reduced by 0.2-0.3% per year. Specifically, the interest rate for a 1-month deposit at this bank is now only 4.3% per year, 3 months is 4.9% per year; 6 months is 5.3% per year and 12 months is 6.6% per year.

Speaking to Infonet, Dr. Cao Sy Kiem – Chairman of the Board of Directors of DongABank – said that the bank's adjustment to reduce deposit interest rates is based on recalculating and balancing "inputs and outputs," specifically the bank's debt structure – deposits – loans. The reduction in deposit interest rates will certainly lead to a reduction in lending interest rates for new loans in the future. Currently, the "margin" (difference) between deposit and lending interest rates at this bank ranges from 3.5-3.7% per year. Borrowers will only benefit from lower interest rates after at least 15 days or a month, once new loans are signed.

"The principle of banking business is that you cannot use high deposit rates to provide low lending rates. Therefore, only when cheaper deposits enter the system and new loan contracts are signed will borrowers and businesses certainly benefit from the new, more affordable lending rates," Dr. Kiem explained.

Regarding the prospect of further interest rate cuts in the short term, Mr. Kiem stated that this depends on inflation trends and the purchasing power of the economy in the coming period. "If inflation continues to decline in the coming months, banks, including DongABank, will certainly have to readjust their strategies to further reduce interest rates," he said.

However, just like with previous interest rate cuts, the Chairman of DongABank remains confident that, despite the current low deposit interest rates, people will still earn interest when depositing money in the bank compared to the very low inflation rate. Therefore, there is no need to worry about "money fleeing the bank."

The move by banks to lower deposit interest rates is also in line with the general policy of the entire banking industry, and this is also seen as a response to Governor Nguyen Van Binh's call earlier this year to further reduce medium- and long-term lending interest rates by 1-1.5% per year.

The strong message from the head of the banking sector is raising expectations that interest rates may be further lowered in the near future. Last week, HSBC's research department also expected the State Bank of Vietnam to continue cutting interest rates on the open market (OMO) by about 0.5% per year.

However, according to an analysis by the Bank for Investment and Development Securities Company (BIDV), interest rates still have room for further reduction, but several factors need to be considered. First, inflation, although currently low due to falling fuel prices, could rise again towards the end of the year. The average inflation rate for the 12 months last year was over 4%, while the government's target for this year is no more than 5%.

According to Infonet