It is worrying when businesses’ deposits increase

Economic expert Dr. Dinh The Hien

What do you think is the cause of this situation?

Before the impact of the fourth wave of the Covid-19 pandemic, people had a lot of income reduction, they also had to pay for other investments, they don’t have much accumulated money to deposit in the bank.

Moreover, bank interest rates are not attractive enough to increase the deposit rate, leading to people transferring their idle money to other investment channels such as real estate, securities, gold, etc.

People’s cash flows are also stuck in mutual loans, also known as free credit, with high interest rates, so more money circulates among people than is deposited in banks.

However, the fact that corporate deposits at banks are higher than residential deposits is more worrying. The reason is that businesses are having difficulty in doing business, because the market is shrinking, trade is limited, business can not invest in buying raw materials to produce goods. Therefore, the proceeds from the sale, which must be kept in the bank, cannot be converted into business cash flow. This may partly affect the capacity and profit of the business this year.

How will the low increase in deposit flow from people affect the economy, is there any positive point?

I have not seen any positive signs of this situation yet. For example, the transfer of money to invest in real estate is expected to increase real estate demand, help real estate prices increase, and create conditions for businesses and the real estate industry to develop after a period of depression due to the pandemic.

Moreover, the decline in the real estate market also has a knock-on effect on the macro-economy. However, if people and organizations increase the amount of money in real estate investment, in the context of high real estate prices, it can hurt the economy, because this capital flow is not put into business to create jobs for workers, does not ensure social security. Even this investment will create the risk of a real estate "bubble".

Regarding securities, the number of individual accounts investing in securities has skyrocketed recently, is this sign that the stock market has developed? In my opinion, individual investors should not be encouraged to participate in the stock market. This may sound "wrong", but the problem here is to direct people to participate in stock investment in an organized and methodical manner.

Experience in operating financial markets in developed countries shows that the number of individual investors directly involved in securities trading is very small.

Accordingly, people will switch to investment channels such as voluntary pension insurance fund, as a way to pay more retirement money to enjoy a comfortable life later.

This voluntary pension fund is also a form of business, keeping retirement money to invest in safe channels such as Government and corporate bonds, this also participates in securities but are organized investment securities.

Besides, people can participate in securities investment at open-ended funds, supported by professional groups to invest in securities according to specific and official information. In Vietnam, these funds have not been developed yet, so few people know about them, so most individuals still participate in investing themselves, so they lack sustainability and safety for the investment as well as the market itself.

Can you tell us how the market needs to adjust and change to solve these problems and difficulties?

To solve the above problems, it is not necessary to raise interest rates. In my opinion, interest rates should not be high, but inflation should be kept well by regulators.

If inflation is kept below 4% and bank interest rates are at 6-6.5%, people's real deposit interest rates will always be positive, instead of pushing interest rates up to 8-9%, causing inflation to rise, which is not good.

Moreover, if inflation is high, the economy and people will be affected.

Therefore, deposit interest rates should be stable so that lending rates are stable, helping businesses to operate smoothly, keep goods prices low, the income of workers is stable, helping people's lives since then also return to a new normal situation.

This operation needs to rely on monetary policy to keep inflation low. In my opinion, from now until the end of the year and early next year, interest rates will not stay low. After the Government and localities handle the pandemic and end the social distancing measures, the demand for cash flow and credit will increase because businesses need money for production and business, causing banks to have to quickly attract deposits. Meanwhile, deposit interest rates kept at a low level are not good for attracting money, so interest rates will move sideways or slightly increase, not decrease.

Thank you!