Banks compete for 'super interest rate' deposit certificates

Many banks have recently stepped up the issuance of long-term deposit certificates with interest rates of nearly 9% per year to attract idle money from the people.

Saigon Thuong Tin Commercial Bank (Sacombank) has just announced the issuance of long-term deposit certificates with quite high interest rates. Accordingly,Customers participating in the certificate with a minimum face value of 10 million VND for a term of 5 years + 1 day will receive an interest rate of up to 8.48% per year, and for a term of 7 years, they will receive 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 buy certificates with a face value of VND1 million and multiples of VND100,000. Customers can buy as much as they want, with interest rates up to 8.8% per year.

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

In addition to the deposit certificates with long terms such as Sacombank from 5 years + 1 day to 7 years, or medium term like LienVietPostBank... some banks like Viet A also offer certificates with quite short terms from 6 months to 18 months and enjoy 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, 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 loans of banks will be reduced from 60% to 50%. To meet this regulation, banks must increase medium and long-term capital.

Meanwhile, many banks in the area are close to the ceiling in the ratio of short-term capital for medium and long-term loans, so they will certainly increase the mobilization of medium and long-term capital to have enough corresponding lending sources. Therefore, issuing certificates of deposit is also a way to increase this medium and long-term capital source.

In addition, according to Mr. Minh, the above move by banks is also aimed at meeting capital needs for projects that they have committed to long-term financing. "Therefore, in recent times, some banks have requested permission to issue a number of long-term deposit certificates to mobilize capital for this purpose," said Mr. Minh.

Further analyzing the above issue, the Deputy General Director of a Southern joint stock bank said that the move to issue deposit certificates by banks also aims to increase the CAR ratio (the percentage of total Tier I capital and Tier II capital compared to the total risk-adjusted assets of the bank, according to regulations this ratio is currently 9%).

Because many banks are currently aiming to comply with Basel II. Accordingly, in addition to credit risks, banks must also control market risks and operational risks. If following the new standard framework, the CAR of Vietnamese banks will certainly be much lower than at present. To achieve the capital safety ratio according to the new standard, banks have no other choice but to increase capital.

Another reason, according to experts, is that although attracting capital through the issuance of certificates of deposit has to pay higher interest rates than conventional savings methods, it will help banks feel more secure in their plans for using capital. Because the characteristic of this type of valuable paper is that the buyer cannot pay before maturity.

But in the current context, when competition is increasingly fierce, banks have become more flexible in allowing customers to freely transfer their deposit certificates with the bank at any time.In case the customer does not want to be discounted when transferring (the bank will charge a fee for early transfer), the buyer can mortgage the certificate to borrow capital from the bank.

With flexibility and attractive interest rates, many banks said that in just a few days, they had mobilized enough capital and closed the books. However, experts also noted that although the interest rate is higher than the interest rate of savings deposits with the same term, buyers need to calculate carefully and should only buy when they have a clear plan for using their capital.

Some experts believe that such high interest rates on certificates of deposit will make it difficult for lending rates to remain stable, especially medium and long-term interest rates. This will partly make it difficult for the State Bank to stabilize and reduce interest rates to support businesses and the economy.

According to VNE