Banks were stepping up capital mobilisation by certificates of deposits, even some issued with the minimum amount of 100,000 dong, with the first-year interest rate up to 9.3%.
A deposit certificate was a valuable paper similar to a savings book, issued by a bank to certify ownership of a term deposit. However, this product had more characteristics similar to bonds than ordinary deposits, because certificates of deposit were often attached with many terms when issued, especially lower liquidity.
Recently, banks had not only rushed to issue high interest rate certificates but also aimed to minimise the purchase price of customers. For example, Saigon Hanoi Commercial Joint Stock Bank (SHB) had just issued 5 trillion dong of Phat Loc deposit certificates for individual customers. With only 100,000 dong, customers were able to buy certificates of interest rates for the first year for six-year and eight-year terms of 9.1 percent and 9.3 percent per year respectively; interest rates for the following years would be adjusted accordingly.
Thus, the minimum certificate value prescribed by SHB was quite different. Previously, the market recorded the issuance of deposit certificates with quite high interest rates but usually applied with minimum par value from tens of millions dong to hundreds of millions dong or more.
For example, Viet Capital Commercial Joint Stock Bank (Viet Capital Bank) in late August announced the issuance of deposit certificates for institutional and individual customers with interest rates ranging from 9.5 percent to 10.2 percent per year, for a term of 24 to 60 months. In particular, the minimum face value was 10 million dong.
Prior to Viet Capital Bank, Vietnam International Commercial Joint Stock Bank (VIB) also announced the issuance of certificates of deposit with a maximum interest rate of 9.1 percent per annum, applicable to a 61-month term and a minimum face value of 10 million dong. At Southeast Asia Commercial Joint Stock Bank (SeABank), at the beginning of the year, customers participating in purchasing certificates with a minimum face value of 100 million dong, with a term of 24 months and 36 months would enjoy interest rates of 8.4 percent and 8.6 percent per year, respectively.
It was understandable to promote the issuance of deposit certificates in the current context because the regulation on the ratio of short-term capital to medium and long-term loans from 45 percent to 40 percent had come into effect this year and was very likely to be reduced to 30 percent according to the upcoming schedule.
However, according to the leader of a commercial bank, banks had raised long-term deposit interest rates to attract deposits but the long-term savings deposits were still very modest. Not to mention the maximum savings deposit was only about three years back, while certificates of deposit could be up to seven years.
That was the reason most banks tended to switch to issuing certificates of deposit, accepting to spend higher expenses than mobilised capital to attract long-term and stable capital. Because one of the conditions that often came with a certificate of deposit was that customers could not withdraw before maturity.
In addition to the pressure of lack of medium and long-term capital, the issuance of deposit certificates also helped banks calculate the cost, due to issuance of only a certain amount. If the sale were sufficient, banks would end the publication ahead of schedule. Conversely, if raising deposit rates, the cost must be higher because it would have to raise interest rates across the portfolio, not to mention the bank was also unable to actively input.
On the buyers’ side, experts recommended that customers buying certificates of deposit need to consider carefully, should only buy when long-term idle capital because the disadvantage was the need to withdraw money forced to wait until the time of maturity. If the certificate of deposit had not yet matured and the buyer needed money, it could only mortgage the certificate of sediment at the issuing bank, but the loan interest rate would undoubtedly be high.
