Many credit institutions (CIs) and finance companies are raising deposit rates. In which, the product of high-interest-rate certificate of deposits (CD) has been offered to many depositors.
Notably, some finance companies have issued high-interest rate apply very high interest rates to attract idle money from people. This is partly due to the Net Interest Margin (NIM) in consumer finance segment of finance companies is fairly high.
For example, VietCredit has carried out the third phase CD issuance with a total face value of one trillion dong, term of 12 months, investment from just 100 million dong, and interest rate of 10 percent per annum. VietCredit provides financial solutions via loan card products. After only one year stepping into consumer finance field, reporting at the Annual general Meeting (AGM) held recently, VietCredit said that its total outstanding loans reached more than 500 billion dong.
That is also a factor for VietCredit to attract large investors and organisations in the market through the capital mobilisations in late 2018 and early 2019. VietCredit’s CD issuances recorded the participation of five big banks, two securities companies, a big fund and many businesses with the total investment value by the end of the first quarter (Q1) of 2019 was more than 900 billion dong.
According to Ho Minh Tam, general director of VietCredit, issuing CDs is a basic operation of finance companies, like banks mobilising capital from residents.
In fact, many banks continue to issue CDs to mobilise medium and long-term capital. Some banks even announce interest rates exceeding nine percent. Specifically, Viet A Commercial Joint Stock Bank has announced an issuance of CDs with record high interest rates. Customers buying CD of at least 10 million dong on 24-month will enjoy monthly interest rate of 8.38 percent per annum, while the end-of-term interest rate will be 9.1 percent per annum.
Previously, some commercial banks have issued CDs at interest rates of approximately nine percent per annum. Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) is issuing CDs throughout the system for individual and institutional customers. Accordingly, an interest rate of 8.6 percent per annum is applied for a seven-year (84 months) CD valued at a minimum of one million dong. Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Saigon Hanoi Commercial Joint Stock Bank (SHB), Maritime Commercial Joint Stock Bank (MSB) have also issued CDs for individual and corporate customers to mobilise medium and long-term capital from the market, in which the highest interest rate can reach up to 8.9 percent per annum.
The reason for banks’ race in issuing high-interest rate CDs is to meet the needs for funding high-interest rate medium and medium projects, in the context when the ratio of using short-term funds for medium and long-term loans has gradually been tightened.
In fact, since banks are currently applying interest rates of 10-15 percent per annum or even above 12 percent per annum for medium and long-term loans of businesses, they are willing to mobilise capital from the market via CD channel at high interest rates of up to nine to 9.5 percent per annum.
Despite the attractive interest rates, CD interests cannot be paid before maturity. This investment tool belongs to the group of investment assets with fixed income and is suitable for medium and long-term investors.
If there is a demand for capital but the valuable papers have not yet come due, buyers of CDs may pledge this type of valuable paper to borrow capital, but the borrowing interest rates will be higher than the rates pay to the CD buyers.
Thus, the high return of this type of valuable paper will be greatly reduced if customer makes a mortgage on CD to borrow capital. In the case when a customer pledges the CD, the ratio of loan on face value of the CD will be calculated according to the bank’s regulations on mortgage lending. Therefore, according to a financial expert, buyers of CDs need to carefully consider and should only buy when they have planned the use of their capital.
At the same time, the buyers should well know the borrowing rate if the bank only allows to borrow capital by pledging valuable paper or applies the interest rate for early payment if early payment is accepted.
Dr Tran Du Lich, member of the Economic Advisory group of the prime minister said that there is no country like Vietnam when the capital of businesses and the medium and long-term capital still heavily depend on banks. Meanwhile, the medium and long-term lending accounts for a fairly large proportion and this situation creates a great pressure on risk to the credit institution system. To reduce dependence on credit capital and the pressure on the banking system, it is necessary to develop the capital market and corporate bond market. By doing this, the interest rate level can be stable and not under pressure.
