The deposit rate will increase at the end of the year

Liquidity is abundant

The State Bank of Vietnam (SBV) 's report on banking activities in 9 months of 2017 said that the interest rate level was stable and decreasing despite the increasing pressure in the first 6 months of 2017. Moreover, the liquidity of the credit institution was guaranteed, the surplus at a reasonable level to support credit growth at the beginning of the year, thereby contributing to stabilizing the deposit interest rates, reducing interest rates. It also supports the Ministry of Finance to successfully issue government bonds with long terms and low-interest rates. The bank’s liquidity is in good condition when interbank rates fall sharply from the middle of the second quarter to below 1% in the third quarter.

According to the National Financial Supervisory Commission’s report on the macroeconomic situation in 9 months of 2017, up to September, the average deposit rate decreased 0.03-0.05 percentage points at the end of the second quarter and at the same level as the beginning of the year. Despite lower deposit rates, mobilizing capital in the first nine months of 2017 grew at an impressive 11.2% compared to the end of 2016 (increase 14.1% in the same period of 2016); In particular, customer’s deposits are expected to increase by 10.9% compared to the end of 2016. As a result, the banks’liquidity is quite good, with average credit/deposit rates reach at 87.2% (85.6% in 2015).

However, some banks have "raised" the deposit interest rates from 0.1 to 0.4% and launch promotions to attract depositors. Talking about the reason why the banks raise deposit rates, Mr Pham Toan Vuong, Deputy General Director of Agribank, said raising interest rates was a signal from the market, absolutely regulated by the market but still have the supervision of the SBV to ensure the market stability, operating according to the set targets. Moreover, according to Mr. Vuong, the banks’ liquidity is still relatively good, even surplus capital, but the banks still have to raise deposit interest rates to compete and keep customers; For small credit institutions, the mobilization interest rates increased at the end of the year to ensure the norms in the safety ratio prescribed by the SBV.

Thanks to the abundant liquidity, according to Ms Nguyen Quynh Nga, Deputy Director of Small and Medium Enterprises, An Binh Commercial Joint Stock Bank (ABBank), the end of the year is the peak season to receive capital, so banks have to raise mobilization rates. However, ABBank raised the deposit interest rate but don’t raise interest rates, as ABBank had special funds to support borrowers. In addition, Ms. Nga said, ABBank raised deposit interest rates but did not increase too much, but will have the incentive programs and incentives attached to ensure attracting customers.

Increase deposit rate because of credit

According to the State Bank of Vietnam (SBV), up to September 20, 2017, credit increased by 11.02% compared to the end of 2016 - a high increase compared to recent years (the same period in 2016 increased 10.46% and the same period in 2015 increased by 10.78%). Thus, there is a large gap between this result with the credit growth target of 21% set by the Government. This gap will pose challenges for credit in the fourth quarter to reach impressive numbers to realize the target of credit growth of 2017.

In fact, the State Bank is still operating the monetary policy in a reasonable way, support to keep a stable liquidity. The SBV bought a significant amount of foreign currency in the third quarter (about $ 3 billion) to increase its foreign exchange reserves. However, the capital pressure at the end of the year will increase pressure on the banking system’s liquidity, affecting the interest rate. This was shown when the interbank rates tended to rise slightly for overnight and two-week terms, with the rising margins at 0.03% -0.12%, showing some liquidity is less redundant.

However, the bank raised deposit rates as a good signal to deposit money into banks, the enterprises meet many difficulties ith. That is the reason why it’s very difficult to reduce interest rates, while the policy of the Government is the banking system to reduce interest rates, support businesses. According to the National Financial Supervisory Commission, in the fourth quarter, there are many supporting factors in lending rates such as the exchange rate pressures are not so great, inflation is controlled, the issuance of Government bonds are boosted, the mechanism to deal with bad debts are operated. According to experts from the Institute for Economic and Policy Research, the demand for cash at the end of the year may create barriers to meeting the requirement to continue reducing lending rates by 0.5 percent from now to the end of the year, which was introduced by the government in early October. Therefore, experts propose the SBV should monitor market movements carefully to support liquidity in time.

It can be seen that the "problem" of interest rates at the end of the year is always a challenge for managers, especially in the context the credit institution system must contribute to ensuring growth targets. Therefore, proper coordination from management agencies and growth strategies, capital attraction, proper capital investment of commercial banks is necessary, avoiding adverse effects on the market of financial – money.