The competition on mobilising capital among banks has never been cooled down with different forms, such as offering higher deposit rates than ceiling level, paying extra interest rate, and launching promotions, etc.
Although the current ceiling deposit rate of 5.5 percent per annum is no longer a hot issue compared to the early days when it was cut from 6 percent to 5.5 percent in late 2014, the State Bank of Vietnam (SBV) has not removed the regulation on ceiling rate. Meanwhile, in fact, many banks have exceeded the limit of 5.5 percent per annum while offering deposit rates on terms of six months or less.
For example, at bank V. in Hochiminh city, when being asked about savings interest rates for terms of six months and less, the bank staff said that the current interest rate list offers 5.5 percent per annum for all terms from six months and less, but if customer deposits from 500 million dong, the bank will offer an addition of 0.1-0.2 percent interest rate, resulting in a total of 5.6-5.7 percent per annum, depending on specific term.
In addition to the short terms, many banks pay an extra 0.2-0.4 percent interest rate for customers depositing from 13 months and more, with the aim to mobilise long-term capital to restructure the capital source, reducing the ratio of using short-term funds for medium and long-term lending as required in Circular 19/2017/TT-NHNN.
Although the policy of the government and SBV is to reduce lending interest rates, from early 2018 until now, the price increase of real state, prosperity of the stock market and the interest rate hike of the US Federal Reserve have put pressure on the dong interest rates.
Under the above pressures, the deposit rates at many banks, especially small banks started to inch up. The current highest deposit rate is 8.3-8.5 percent per annum at Viet Capital Commercial Joint Stock Bank (VietCapital Bank) and Viet A Commercial Joint Stock Bank (VietABank), applying for terms from 13 months and more for customers depositing capital from one billion dong and receive interests at maturity.
In addition, most bank are offering promotions and bonus interest rate to attract idle money from the population. Dr Tran Du Lich, an economic expert said that due to the pressures of inflation and US dollar (USD) appreciation, interest rates in 2018 can hardly fall. The important thing is how to keep interest rates stable because they fell slightly in the end of 2017.
The current interest rate level is considered much more stable than before. At the same time, as the dong (VND) deposit rates can hardly fall, many people said suggested the SBV to consider removing the ceiling deposit rate.
According to Dr Nguyen Xuan Thanh, director of Development, Fulbright University Vietnam, the government always wants the monetary policy to achieve two goals, which are to maintain macroeconomic stability, particularly to stabilise the currency value, and to control inflation at low level at the same time supporting growth. The economic growth in the first quarter (Q1) 2018 was at good level. If the growth in the remaining quarters is as not high as in Q1, Vietnam is likely still achieve its annual growth target. Thus, the monetary policy from now until the end of the year should not be loosened but should target the maintenance of the objectives such as ensuring low inflation and stabilising VND.
With the results achieved in the recent time in macroeconomic stability, Dr Thanh believed that SBV should have a roadmap to adjust the monetary and credit policy instruments. He analysed that from 2014 until now, due to the pressure of both stabilising macro economy and restructuring the banking system, the monetary policy instruments have mainly been admistrative, including the regulations on interest rate cap and credit growth limit. Meanwhile, for the management of interest rates, instead of imposing a ceiling rate, the SBV can operate through the Open Market Operations (OMO).
Financial experts said that the interest rate and exchange rate are the most difficult issues in 2018, and the possibility to lower interest rates are even more difficult compared to 2017. The reason is that in addition to the inflation pressure, the USD interest rates are following an upward trend, while Vietnam’s monetary policy is multi-purpose including to stabilise exchange rate and keep the difference at a reasonable level to attract people depositing in VND.
In the current context, it is difficult to lower deposit rates, especially when some investment channels (securities and real estate) are regaining prosperity.
In order to reduce interest rates, Dr Lich said that the bad debts should be solved in order to unfreeze credit and reduce the pressure of risk provisioning for banks, etc. Dr Lich believed that the deposit rate can be considered being removed since 2017. Although it is an administrative measure in volatile periods, it is not necessary to be maintained although the monetary market is now somewhat stable.
