For the first time in many years, dong deposit interest rates of some commercial banks have officially exceeded bond interest rates of some large companies.
In the issuance of dong deposit certificate for the first period of 2019, Saigon-Hanoi Joint Stock Commercial Bank (SHB) has announced its interest rates up to 8.6 percent per year, 8.7 percent per year and 8.8 percent per year for terms of 18, 24 and 36 months respectively. This issuance became noticeable because its interest rates officially exceeded the bond interest rates of some large companies in the market.
Until the end of March 2019, three large corporations, Novaland, Vingroup and Masan Group, have mostly long-term bonds distributed through Techcom Securities (TCBS) to mobilise capital.
Bonds of these groups have created a familiar flow in the market in the past four years, and are increasingly strong in attracting institutional and individual investors.
One of the factors for this strong flow lies in the interest rate difference. Bond interest rates of Novaland, Vingroup and Masan Group are usually higher than commercial banks’ deposit rates from 1.35 percent to 2.15 percent in relatively similar terms.
However, as mentioned above, with the issuance of SHB’s deposit certificates, a new phenomenon has appeared, the interest rate on bank deposits is much higher than the bond interest rates of the above-mentioned leading corporates.
Specifically, for 16 and 21-month bonds offered by Vingroup and introduced by TCBS, the interest rates are 8.61 percent and 8.4 percent per year; 14-month bonds of Masan Group only 7.88 percent per year. Meanwhile, the interest rate of SHB deposit certificates is from 8.6 percent to 8.8 percent per year in relatively similar terms.
SHB’s deposit certificate is not unique. The phenomenon of bank deposit rates higher than corporate bond interest rates is also shown in some other commercial banks recently.
As at Saigon Joint Stock Commercial Bank (SCB), in terms from 13 to 36 months, the interest rate applied from March 7, 2019 is also 8.55 percent per year, much higher than Vingroup and Masan Group long-term bond interest rates. Likewise, in Viet Capital Joint Stock Commercial Bank (Viet Capital Bank), the dong deposit interest rate for terms over 18 months is 8.6 percent per year.
In Vietnam’s market, depositors have typically and traditionally chosen commercial banks. They are also widely considered a safer channel compared to corporate bonds as they are supervised by the State Bank of Vietnam (SBV), government and Deposit Insurance.
Meanwhile, corporate bonds with high risks and no collaterals are still quite new to individual investors.
Therefore, corporate bond interest rates are often much higher than deposit rates at commercial banks.
However, the interest rates of commercial bank deposits are now actually higher than corporate bond rates, and this gap is expanding.
This phenomenon on the one hand reflects the competitive pressure to raise capital in the growing Vietnamese banking system, as well as the pressure in balancing the local resource structure. On the other hand, it also creates pressure to consider competitiveness and cost of capital calling for companies that are actively seeking other resources rather than bank credit.
Along with other factors, this phenomenon contributes to the prediction that dong interest rates are unlikely to decrease in the short term.
