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Banks further lower deposit rates

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HCMC – Local banks have continued to cut deposit rates by 10-90 basis points for various tenors since the beginning of this month, the steepest rate cut following a downward trend being established since the end of last year, aimed at saving operating costs amid low credit growth, SSI Securities Corporation said in a recent report.

Commercial banks with State holdings have lowered deposit rates by 25-30 basis points for tenors of less than six months and by 50 basis points for tenors from six months onward.

At the Bank for Foreign Trade of Vietnam (Vietcombank), a State-owned lender, the rate for the one-month term was capped at 3.7% per year, while annual rates for six-month and 12-month tenors were set at 4.4% and 6%, respectively. These rates are similar to those of the Vietnam Bank for Industry and Trade or VietinBank.

Meanwhile, private banks such as Techcombank, Asia Commercial Bank (ACB) and Tien Phong Bank made sharper cuts by 50-90 basis points. At other banks that regularly offer competitive deposit rates including VPBank, SHB or HDBank, the rates were slashed by 10-30 basis points.

At VPBank, for instance, customers depositing less than VND300 million for a one-month term will receive an annual rate of 3.8%. The rates for this saving in the six- and 12-month terms are 6.2% and 6.4% per year, respectively.

The one-month tenor at VIB and HDBank is set higher at 3.95% per year. Regarding ACB, the lender offers an annual rate of 4% for tenors from one to three months.

Overall, the rates for tenors shorter than six months are between 3.5% and 4.25%, at 4.4%-6.7% for terms from six to less than 12 months and 5.5%-7.5% for savings of 12 or 13 months, according to the securities firm.

In mid-May, local banks had slashed deposit rates after the State Bank of Vietnam announced the reduction of a series of key interest rates by 0.2-0.4 percentage points, citing the redundancy of liquidity among the key reasons for the deposit rate cuts.

In the open and interbank markets, trading remained quiet. The interbank interest rate for the overnight tenor is at 0.21% per year and for the one-week tenor it is at some 0.3%.

SSI forecast that deposit rates will remain flat after this downward adjustment, as the deposit reduction by 1%-2% is nearly equal to the lending rate cut. Credit growth is also expected to bounce back and the disbursement of public investment will be facilitated.

Concerns over cash flow

The reduced deposit rates could have many consequences and affect the cash flow in the local economy.

According to KBSV securities firm, local banks have cut deposit rates to save operating costs and protect their net interest margin from a sharp decline.

Meanwhile, some leaders of local banks predicted that many obstacles lie ahead for the banking sector. The sector’s business performance results in the first and second quarters have yet to fully show consequences of bad debts caused by Covid-19.

Accordingly, local banks still hesitate to boost lending activities during this period. They remain cautious and watch the development of this public health crisis. However, there are some banks planning to promote credit growth as the economy is recovering.

SBV recently raised credit growth limits at a number of banks, amid several positive figures related to economic growth being released.

By the end of the year, the State Bank will adopt further drastic monetary measures, including re-granting capital to major projects to support economic growth, Le Minh Hung, Governor of SBV, said at a recent conference.

Given the downward trend in deposit rates, borrowers are expecting an extra reduction on lending rates. However, during the coronavirus pandemic, many enterprises complained that they faced obstacles in accessing bank loans, which were meant to support coronavirus-hit businesses.

As for depositors, lowered deposit rates could prompt them to find alternative investment channels. Experts in the field voiced their concern over the direction of cash flow in the upcoming period, especially as gold prices continue their upward spiral and the number of individual stock accounts rises.

By Dung Nguyen

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