Banks race interest rates

While banks are in a fierce competition for interest rates to attract capital, businesses are on edge in the face of the risk of a wave of rising interest rates ahead.

Banks are under pressure to increase deposit interest rates.

Banks race interest rates

The highest interest rate on the market today is at Tien Phong Commercial Joint Stock Bank (TPB) with a rate of up to 8.4%/year. Other banks are also following closely. But that is only the officially announced interest rate, the "implicit" interest rate is higher. Mr. Q. Trung (District 7, Ho Chi Minh City) said that a week ago, a medium-sized bank adjusted the interest rate for 6-month deposits from 5.8%/year to 6.12%/year and for 1-year deposits to 7.5%/year, a sharp increase compared to the previous interest rate of 6.8%/year.

Notably, not only small and medium-sized banks are competing in interest rates to raise capital, but many state-owned banks with leading scale are also having strong competitive interest rates. For example, BIDV is offering interest rates 0.2 - 0.3% higher per year than ACB for both short and long terms.

This has left small banks “drowned” in the interest rate race. The head of the personal customer department of a large commercial joint stock bank said that the bank has been under great pressure for the past 2-3 months, as it has had to consider reducing lending interest rates according to the State Bank of Vietnam’s (SBV) policy, while at the same time keeping a close eye on the movements of major banks in the market.

“The fact that major banks are raising interest rates is a strange and unusual sign. Unless the State Bank of Vietnam wants to absorb money in circulation, I have never seen state-owned commercial banks compete for capital so fiercely,” he said.

Not only does it make smaller banks follow, but more importantly, attractive interest rates help large banks attract strong capital in the market. “If this continues for a longer period, it will seriously affect the liquidity of banks. We are also forced to raise interest rates to retain capital, the increase in capital costs further increases the operational pressure on banks and businesses. Because joint stock commercial banks have only developed for 20 years, while big banks with a development length of more than 50 years like Vietcombank, how can they compete with the amount of data, customers, and market?”, analyzed the leader of another bank.

In fact, banks have had to adjust deposit interest rates for large customers by a common 0.5%/year. This is an extremely large adjustment. Because with this interest rate, plus the bank's profit margin of 2-3%, lending interest rates for new contracts in the coming time will certainly escalate.

Financial experts say that one of the reasons for the current increase in deposit interest rates is because banks are short of capital.

High profit business

According to the announcement of the State Bank, in the first week of May, the common lending interest rate for priority sectors was at 6 - 7%/year for short term, and common medium and long term lending interest rate for priority sectors was at 9 - 10%/year.

Interest rates for loans to normal production and business sectors are typically 6.8 - 9%/year for short-term loans and 9.3 - 11%/year for medium and long-term loans. However, some businesses said they still had to bear interest rates higher than this average.

Specifically, Truong Thanh Wood Industry Corporation has had to pay short-term loan interest rates of up to 10%/year since the beginning of 2016. Each month, Truong Thanh Wood has to pay about 5 billion VND in interest. "If the loan interest rate can be reduced to 7%/year, it will support businesses a lot, especially in the context of fierce competition with neighboring countries to export goods to the world," Mr. Vo Truong Thanh, Chairman of the Board of Directors and General Director of Truong Thanh Wood Company, hopes.

According to Mr. Dinh Cong Khuong, Director of Khuong Mai Steel Company Limited, the company is paying short-term interest rates of 7.5 - 8%/year and long-term interest rates of 9 - 10%/year. This interest rate has been applied for nearly a year and has not changed. "This is a much higher interest rate than the interest rates of countries in the ASEAN region. I just hope that the interest rate will be around 6%/year as is being applied to priority sectors so that businesses can breathe easier. Because high capital costs will push up product prices and they will not be able to compete with businesses in other countries in the region, even at home," said Mr. Khuong.

Mr. Nguyen Tri Kien, General Director of Minh Tien Handbag Garment Company (Miti), is concerned that the interest rate trend will increase in the coming time due to many factors such as higher inflation than last year, high input mobilization interest rates... In particular, the fact that interest rates have remained at 8%/year for the whole year shows that hundreds of thousands of normal production businesses like Miti have a harder time accessing lower interest rates. "The businesses themselves are passive and have to accept the interest rates offered by banks when borrowing capital. But if the loan interest rate is reduced to about 6%/year, it will be more reasonable and help businesses save more on production and operating costs," Mr. Kien analyzed.

Interest rates are not stopping

According to economist Nguyen Minh Phong, for more than 3 months now, banks have adjusted deposit interest rates amid high expectations of higher interest rates and a loosened credit growth ceiling. Therefore, banks have mainly adjusted medium and long-term interest rates. This also creates conditions for a more standard interest rate curve, instead of the current situation where short-term and medium- and long-term interest rates have been equal, distorting the financial market. In addition, the phenomenon of state-owned banks increasing deposit interest rates is partly due to the fact that they have poured a lot of money into government bonds.

Economist Ngo Tri Long said that there are many factors that push banks to increase interest rates. The first is liquidity, the second is capital demand, and the third is the increase in risk reserve funds. In particular, now that the Government has to balance the budget and make up for the shortfall in revenue by issuing domestic bonds, it also absorbs a large amount of money from the banking system. This leads to banks increasing interest rates to mobilize more capital. Borrowing power is concentrated in the country through bond issuance, pushing bond interest rates up and making it difficult to reduce them in the near future. This is also the reason why, although inflation is not high at present, interest rates have jumped. "More than 80% of bond buyers in the market are banks. In this context, especially when inflation tends to return, interest rates will continue to increase," said Mr. Ngo Tri Long.

According to Thanh Nien