The financial statements for the second quarter (Q2) of 2020 of three big banks including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) all had one similar thing the deposits of the State Treasury (which is the advantage of these banks) dropped sharply.
Specifically, as of June 30th 2020, the term deposits of the State Treasury at BIDV were only 13 trillion dong, down by 85 percent compared to the beginning of the year.
Similarly, at VietinBank, the State Treasury’s deposits also fell significantly by 37 percent to 44.380 trillion dong.
More noticeably, at Vietcombank, the payment deposits of the State Treasury plummeted from 89.288 trillion dong at the beginning of the year to 992 billion dong, equivalent to an 89 percent reduction. In particular, the State Treasury fully withdrew more than 87.8 trillion dong of term deposits in dong at Vietcombank, leaving only demand deposits.
The sharp decline of the State Treasury’s deposits at those three banks is due to the effectiveness of Circular 58/BTC from November 1st 2019. Accordingly, the payment deposits of the State Treasury were transferred to the account at the State Bank of Vietnam (SBV) instead of at commercial banks; while the term deposits of the State Treasury are carried out via bidding in volume and interest rates.
Previously, those three banks always received large deposits from the State Treasury, sometimes amounting to 500 trillion dong. This helped Vietcombank, VietinBank and BIDV had a clear advantage in mobilising capital compared to other banks. The State Treasury’s deposits are always considered as a low-cost source of capital because of low interest rates, helping banks optimise input costs, reduce lending interest rates and create different positions in competition compared to private joint stock banks.
Accordingly, the decline in the State Treasury’s deposits could significantly affect the advantages of those banks, particularly in the context when banks are in desperate need of cheap capital to ensure business results when sharply reducing lending interest rates to support customers hit by Covid-19.
