That was the recommendation of Nirukt Sapru, general director of Standard Chartered Bank in Vietnam and a group of 5 Asean and South Asia countries, in the current downtrend of interest rates.
Vietnamese banks were lowering deposit rates to lower lending rates to support businesses in a difficult period due to the Covid-19 pandemic. In theory, low interest rates caused deposits to depreciate. Thus, according to Nirukt Sapru, would consumers withdraw savings deposits at banks to buy bonds or invest in real estate, gold, foreign currencies?
In the economies that were maintaining zero interest rates, or in two typical economies with meager lending rates like Singapore and the US, there was a correlation between risk and interest rates, besides the fact that people all had a certain amount of savings in banks.
When interest rates were high, people would tend to deposit more in banks. Conversely, when interest rates fell, they would look to other opportunities to invest their capital.
However, it depended on the level of risk they could accept. Some people would tend to invest all their resources in stocks or gold, but neither was a wise strategy.
The wise investor would focus on how much was in his portfolio, and how much was being allocated to other areas of investment. That showed the level of risk tolerance of investors.
Depending on the risk range, they might receive additional risks in their investments. The question they always asked themselves was what they would choose between getting rich quickly and accepting to be poor? Investors always wanted to find the answer to that question when looking for solutions to balance investments.
Of course, in the context of low interest rates, there would be more investments to attract people who needed more investment than before.
However, reality always showed a balance between risk and profit. One reason for the lower interest rates was that the profits earned from other areas were not high because of many dangers.
Nevertheless, Nirukt Sapru did not think everyone should stop depositing money in banks and only focus on investing because this was a tough decision, and customers needed to be careful when deciding to take risks.
Was it necessary for people to diversify their portfolios?
As Nirukt Sapru, yes, it was necessary. When the interest rate was zero percent, investors tended to be more ambitious to diversify that risky asset, while it depended on whether the asset was profitable or not. Therefore, investors needed to pay attention to the balance between preserving the investment and its profitability. Banks would continue to support their customers with their finances.
Each person had his own risk tolerance level. Therefore, they needed to base on it to manage investments. In particular, those with limited financial resources and a risk-affected nature should not seek to get rich quickly through the high-risk investment method, because they were more vulnerable than others.
The banking sector should regularly guide people. Also, the government should actively recommend people be cautious when investing in risky areas because low interest rates would encourage people to invest more.
Even so, the global economy had proven that, if interest rates were at a low level, investors would maintain their investment decisions when they had little belief in the economic prospects. Low interest rates did not mean a higher investment rate. Typically, in Japan, although low interest rates had been maintained for the past 30 years, the growth rate was still not commensurate with expectations.
Lowering deposit rates was intending to lower lending rates. Still, many argued that interest rates were not a ‘bottleneck’ of businesses because when many banks offered reasonable interest rates, businesses again did not borrow.
About that issue, Nirukt Sapru thought that there were two completely different issues. The first was high or low interest rates and the ability of businesses to access finance. The second was the ability of companies to access capital from banks. It was true what made business operations easier was interest. Still, access to finance from a bank was utterly different, as it depended on business plans, growth, loan needs.
Citizens wanted high deposit rates, and businesses wanted low lending rates, how did Nirukt Sapru evaluate that?
According to Nirukt Sapru, the governments around the world were trying to lower interest rates to help lower borrowing costs, thereby enabling businesses to grow.
When interest rates dropped, the message they wanted to send was that people should invest in something else besides depositing money in a bank. The goal of low interest rates was to encourage people to invest in good businesses, thereby helping the economy grow, instead of leaving money in the bank and not earning any interest.
Access to finance from banks was a challenge for both developing and underdeveloping economies.
It was not until the Covid-19 pandemic appeared that this problem had become a challenge, but it had always been an obstacle for businesses and individuals wishing to access credit.
This was even more urgent after the epidemic because of the urgent demand to access funds. That was why banks wanted to work with active management businesses to help them maintain sustainable business operations, thereby helping them develop more smoothly.
Regarding Vietnam’s economy in the next time, what was Nirukt Sapru’s opinion?
Nirukt Sapru maintained an optimistic view and believed in the future of Vietnam. Standard Chartered Bank would continue to invest, seek development opportunities, and look forward to supporting Vietnamese consumers and businesses as they seek opportunities to integrate into the global economy.
Standard Chartered Bank believed that Vietnam was the best country in the world to fulfill its commitments to Europe and the post-epidemic world. Vietnam had won the race before the pandemic, and so Standard Chartered Bank was proud to be part of that story.
Standard Chartered Bank was here to support the community and support Vietnam to attract more foreign direct investment, thereby improving the quality of life. Standard Chartered Bank was here to grow with Vietnam, Nirukt Sapru emphasized.
