The race of deposit rate: Good or bad?

Many banks increased deposit rate in long term saving. Illustration image: H.Dịu

Through market surveys, in general, the savings interest rates in September 2019 had a slight increase, ranging from 4.5 to 8.6 percent per year depending on the term, but there was an non-homogeneous distribution between banks. Accordingly, State-owned banks sharply increased short and medium-term savings interest rates, while commercial banks increased in the medium and long-term segment.

In addition, many banks have made adjustments to increase interest rates for six-month terms. Specifically, North Asia Bank raised the interest rate for six-month term from 7.3 percent to 7.5 percent/year; VPBank increased the interest rate for six-month term deposits from 7-7.3 percent/year to 7.3-7.5 percent/year; ABBank has sharply increased interest rates for six months from 6.8 percent to 7.5 percent/year.

For long term savings, the highest interest rate was up to 8.6 percent/year for VIB Bank (12 month term), TP Bank (24 months), Viet Capital Bank (24 months).

Besides changes in interest rates, September is also the time when banks launch many great promotions andgifts and to attract customers to deposit.

According to the general assessment from July to now, the market of banks has been taken place "a wave" of deposit interest rates, maybe even becoming a "race" of interest rates. Therefore, at the end of August, the State Bank issued a dispatch to alert banks from racing and dodging the law to raise deposit rates.

According to a representative of a commercial bank, the increase in deposit rates was mainly in the long term to meet regulations on the ratio of capital sources of the State Bank, so it took place only partially in some banks with small scale. Moreover, the end of the year is when business capital demand of customers is large, so banks need to attract money to ensure liquidity.

However, raising deposit rates has both advantages and disadvantages depending on how the bank operates.

According to banking and finance expert Dr. Nguyen Tri Hieu, if there was a race of interest rates, it would create severe competition. The interest rates offered by banks depend on their business strategies and market rate of interest. If banks raise capital high, the beneficiary is the people. If the banks use that capital to make non-profit business, they would "fire" themselves.

Moreover, many people think the exchange rate between USD and VND was under pressure, so banks have to push interest rates at a high level to stop customers withdrawing VND to buy USD to hold.

However, the problem that should be a concern was the law-breaking, "overnight" interest rate with large deposits of customers under six months, the most common method is to record interest rates on savings books, and the difference was paid in the form of giving money to your account. This would certainly affect the market, increase lending rates and create unfair competition among banks.