Banks increase deposit interest rates

Since early September, some banks have increased their deposit interest rates by a common 0.1%-0.3%. This move has many people worried that it will affect expectations of a reduction in lending interest rates.

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From September 5, VietCapitalBank has increased its VND deposit interest rate. The bank listed the 6-month term interest rate at 7.1%/year instead of 7%/year as before; the 13-month term has an interest rate of 7.8%/year instead of the old rate of 7.5%/year. The highest interest rate of 8.2%/year is applied to the 18-month term. The 24-month, 36-month, 48-month, and 60-month terms all have an interest rate of 7.2%/year.

Previously, from September 1, Vietnam Prosperity Joint Stock Commercial Bank (VPBank) applied a new interest rate schedule with an increase of 0.1% - 0.3%. Accordingly, the interest rate for a 1-month term is 5.2%/year; the interest rate for 3-month, 4-month and 5-month terms is 5.5%/year. The interest rate for 13-month and 15-month terms is 7%/year. The highest interest rate of 7.7%/year is applied by this bank for a 36-month term.

It is easy to see that the increase in deposit interest rates this time is localized and not widespread in the system and concentrated in small-scale banks. Banks still increase interest rates even though liquidity in the system is abundant. Interbank interest rates at the end of August hit a record low (below 0.8%) for all three terms (overnight, one-week and two-week terms). Last week, according to Bao Viet Securities Company (BVSC), interbank interest rates have increased but the level is at a low level in many years. Interest rates for one-week and two-week terms were 0.83%/year and 1.06%/year, respectively, showing that the liquidity surplus in the credit institution system is still relatively large. BVSC believes that the liquidity surplus will likely continue and the interbank interest rate level will continue to remain at a fairly low level, around 1% for all three terms in the next few weeks.

The National Financial Supervisory Commission said that the financial system in the first 8 months of the year generally ensured good capital supply capacity for the economy due to the abundant liquidity of the banking sector. As of July 31, 2016, the total capital supply for the economy reached 7,489 trillion VND, up 12.5% ​​compared to the end of 2015; of which, the capital supply of the banking sector accounted for 74.9%, up 9.1% compared to the beginning of the year, the remaining capital market (including stocks and bonds) contributed approximately 25.1% of the total capital supply, up 24.3% compared to the beginning of the year.

Liquidity in the system is abundant, so why do banks still increase deposit interest rates? According to some experts, some banks increase interest rates to balance short-term and medium-term capital sources because from 2017, the ratio of short-term capital used for medium- and long-term loans at commercial banks will decrease from 60% as present to 50%. In addition, banks increase interest rates to attract deposits, meeting lending needs when credit often grows rapidly in the fourth quarter.

Although not common, banks increasing deposit interest rates will more or less affect expectations of reducing lending interest rates to support production and business enterprises.

Information provided by the State Bank of Vietnam (SBV) at a meeting with credit institutions (CIs) to assess the monetary market situation in the first 8 months of the year, serving the direction and management of banking activities in the last months of 2016, which has just taken place, shows that the SBV has issued documents directing CIs to review and ensure liquidity at all terms and reasonable credit growth; thereby, reducing pressure on term differences and pressure on interest rates.

Through review and assessment, in the first 8 months of the year, the basic mobilization interest rate was stable, with a slight increase of 0.2-0.3% from mid-February to March. Since May, some credit institutions have adjusted their rates up, some have adjusted their rates down, but the general trend is stable. With the synchronous implementation of solutions, the lending interest rate level of credit institutions has basically been stable. Since the end of April 2016, state-owned commercial banks and some joint-stock commercial banks have reduced short-term lending interest rates by 0.5%/year and brought the medium and long-term lending interest rates to a maximum of 10%/year for customers borrowing capital for production and business purposes, while actively implementing lending programs with preferential interest rates.

According to Hanoimoi