In order not to affect the profitability while still attracting customers’ deposits, Vietnamese banks always have to look at each other to compete. Meanwhile, foreign banks seem to be quite calm against interest rate races.
At Shinhan Bank, deposit rates in dong currently range between 3.3 percent and 7.4 percent/annum for less than six-month term, and 4.1-5.6 percent/annum for 6-12 month terms. Apart from US dollars, other foreign currencies sent to Shinhan Bank have interest rates at around one percent per annum.
Meanwhile, at HSBC, savings rates for 3-month term were 1.25 percent compared to 1.74 percent for 6-month term, 2.72 percent/annum for 12-month term; and 2.65 percent for 36-month term. In addition, if making online deposits at banks, customers will be added with 0.25 percent/annum compared to the listed interest rates.
UOB lists interest rates at higher level. Deposits in dong term are 2.15 percent/annum for one-month term, compared to 3.1 percent/annum for 3-month term, 3.75-4 percent/annum for 9-month term and 4.5 percent/annum for one-year term.
It can be seen that the aforementioned interest rates of foreign banks, especially when having added interest rates following preferential programmes, are still lower than in Vietnamese banks, including Vietinbank, Vietcombank the joint stock commercial banks that are having the lowest savings rates in the market.
For example, at Vietcombank, individual customers with 3-month deposits enjoy the interest rates of 4.6 percent/annum, compared to 5.1 percent for 6-month term; more than 6.4 percent for more than 12 month term. These interest rates are 1-2 percent higher than foreign banks.
Competition in price does not seem to be the focal policy of foreign banks when not only low deposit rates but many kinds of service fees, especially for VIP customers, are much higher than the average of domestic banks.
For example, credit card service which has been considered as the leading advantage of HSBC, Shinhan or Standard Chartered Bank, etc. has an average annual fee for platinum cards at 1-2 million dong, much higher than the 600,000-800,000 dong for domestic banks. However, such small services as cash withdrawal, money transfer in the same system have mostly been exempted for many recent years.
One of the keys in foreign banks is to strengthen the development of credit card products, foreign currency business and asset management, mainly targeting at customers with high income; VIP customers also tend to prefer services of foreign banks.
It can be seen that their policies are not to focus on price competition but on enhancement of service quality and service.
While Vietnamese banks are still struggling to increase income from non-credit activities, this source of revenue brings about 30-40 percent of operating income in foreign banks (non-credit interest at HSBC accounts for 35 percent of income from business operation of banks, in which, profit from service accounts for more than 15 percent).
Due to low deposit rates, the ratio of cost to credit income of foreign banks is much higher than domestic banks. At HSBC, interest income and similar revenues reached 2.986 trillion dong, of which, interest and similar costs were only 259 billion dong (equal to 8.6 percent of income), while that in Shinhan Bank was just 28 percent. Meanwhile, for banks that benefit from cheap capital such as Vietcombank, BIDV, the interest cost/interest income ratio is 50-60 percent.
That is also why, even with outstanding loans, income from lending is much higher than other banks with the same scale such as TPBank, Bac A Bank, OCB, etc. but thanks to low interest rate costs along with stable and oustanding income from services, HSBC or Shinhan Bank still have competitive profits.
