Banks compete to offer 'super high-interest' certificates of deposit.

Many banks have recently stepped up the issuance of long-term certificates of deposit with interest rates close to 9% per year in order to attract idle funds from the public.

Sacombank (Saigon Commercial Bank) has just announced the issuance of long-term certificates of deposit with relatively high interest rates. Accordingly,Customers participating in certificates with a minimum face value of 10 million VND and a term of 5 years + 1 day will receive an interest rate of up to 8.48% per year, while those with a 7-year term will enjoy an interest rate of 8.88% per year for the first year.

Meanwhile, LienVietPostBank issues medium-term certificates (18 months, 24 months, 36 months, and 60 months) requiring customers to purchase certificates with a face value of only 1 million VND and multiples of 100,000 VND. Customers can buy any amount they want, and interest rates can reach up to 8.8% per year.

Issuing certificates of deposit is also one way for banks to rebalance their capital sources in order to meet the required ratio of short-term capital to medium- and long-term loans. Photo: PV.

Besides long-term certificates of deposit like Sacombank's from 5 years + 1 day to 7 years, or medium-term certificates like LienVietPostBank's, some banks like Viet A Bank also offer certificates with relatively short terms from 6 months to 18 months and the highest interest rate of up to 8.2% per year.

Commenting on this development, Mr. Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam, Ho Chi Minh City branch, shared:According to Circular No. 06/2016, from the beginning of 2017, the ratio of short-term capital used for medium and long-term lending by banks decreased from 60% to 50%. To meet this regulation, banks must increase their medium and long-term capital.

Meanwhile, many banks in the area are nearing the ceiling on the ratio of short-term capital used for medium and long-term lending, so they will certainly increase their mobilization of medium and long-term capital to ensure sufficient funds for lending. Therefore, issuing certificates of deposit is also a way to increase this medium and long-term capital.

Furthermore, according to Mr. Minh, this move by the banks also aims to meet the capital needs for projects they have committed to financing long-term. "Therefore, recently, some banks have requested permission to issue a quantity of long-term certificates of deposit to raise capital for this purpose," Mr. Minh said.

Further analyzing the issue, the Deputy General Director of a Southern joint-stock bank stated that the issuance of certificates of deposit by banks also aims to increase the CAR ratio (the percentage of total Tier 1 and Tier 2 capital compared to the bank's risk-weighted total assets, currently set at 9%).

Currently, many banks are aiming to comply with Basel II. Accordingly, in addition to credit risks, banks must also control market and operational risks. If judged according to the new framework, the CAR (Capital Adequacy Ratio) of Vietnamese banks will certainly be much lower than it is now. To achieve the capital adequacy ratio according to the new standard, there is no other way than for banks to increase their capital.

Another reason, according to experts, is that while banks may have to pay higher interest rates than traditional savings methods, attracting capital through the issuance of certificates of deposit gives them more confidence in their capital utilization plans. This is because the characteristic of this type of security is that the buyer cannot withdraw the funds before maturity.

However, in the current context, with increasingly fierce competition, banks have become more flexible by allowing customers to freely transfer certificates of deposit with the bank at any time.If the buyer does not want to be subject to a discount when transferring ownership (the bank will charge a fee for early transfer), the buyer can pledge the certificate as collateral to borrow funds from the bank.

With flexibility and attractive interest rates, many banks report that they have raised enough capital and closed accounts within just a few days. However, experts also note that although the interest rates are higher than savings deposit rates for the same term, buyers need to carefully consider their options and should only purchase these accounts when they have a clear plan for using the capital.

Some experts believe that such high interest rates on certificates of deposit will make it difficult for lending interest rates to remain stable, especially medium- and long-term rates. This will somewhat hinder the State Bank's goal of stabilizing and reducing interest rates to support businesses and the economy.

According to VNE