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The shift of bank deposits

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Over the years, the ratio of deposits made by economic institutions has risen significantly among the overall deposits into the banking system. This ratio at approximately 40% five years ago soared to almost 49% recently to approach that made by individual bank account holders. Notably, the ratio has climbed remarkably over the past two years.

According to statistics updated lately by the State Bank of Vietnam (SBV), bank deposits by economic institutions had amounted to VND5,036,951 billion by the end of May 2021, a rise of 3.2% over earlier this year. It is interesting to notice that the growth rate of economic institutions’ bank deposits unexpectedly rose higher than that of individuals as well as the common rate in the entire banking system (increasing by 2.92% over the beginning of the year) considering the fact that it was always lower in the first four months.

Economic institutions’ deposits have surged dramatically since the end of 2020

Some have opined that the rise was inevitable as the coronavirus has come back strongly since May in Vietnam’s economic growth engines, temporarily putting on hold operations of many enterprises. The stall has resulted in the escalating idle capital sent to banks. Reversely, the risks of Covid-19 and the demand for stockpile relating to not only food but also cash have impacted the deposits of individual bank account holders.

More importantly, economic institutions’ bank deposits in May jumped substantially by 26.77% year on year versus the growth rate of only 5.05% posted by individual bank customers and 14.63% of the common rate. Although the rate increased modestly in the first four months, the phenomenal growth of deposits by economic institutions compared with the year-earlier period was fueled mostly by the exponential leap during the last months of 2020, particularly in December, which saw a sudden rise of 6.55% from November and 23.1% year on year.

Over the years, the ratio of deposits made by economic institutions has risen significantly among the overall deposits into the banking system. This ratio at approximately 40% five years ago soared to almost 49% recently to approach that made by individual bank account holders. Notably, the ratio has climbed remarkably over the past two years.

This shows that the Covid-19 pandemic which has wreaked havoc on Vietnam’s economy is merely one among the factors exerting influence on the shift in the flow of bank deposits. As a result, bank deposits made by the corporate sector have played a more significant role or even the key role in banks’ operations. Is there a motive that has set this trend?

The driving force: the pandemic and the development of the capital market

In addition to the Covid-19 pandemic as mentioned above, the rise of the corporate sector’s bank deposits also comes from the impressive growth of the corporate bond market over the past two years. When enterprises issue their bonds, banks often play the role of distributor by offering the bonds to their own customers who are holders of savings accounts. This way, a huge amount of bank savings are transferred to corporate bonds, which is why the growth of savings deposits by individuals has lost steam to a certain extent. On the contrary, if businesses can manage to mobilize a huge amount of capital from their bonds and have no immediate plans to utilize it, they often choose to deposit it into their accounts at the banks in question.

Secondly, given the extremely low savings interest rates over the past few years, many depositors have withdrawn their money to invest in the stock market. This trend has been set during the past five years when the number of new accounts requested at brokerage houses broke one new record after another. Subsequently, a big volume of capital would wait at securities firms’ accounts to be ready to jump at investment opportunities, even when the market is in the time of corrections.

According to data collected by brokerage houses, by the end of the second quarter of 2021, their account balance of customers is about VND86 trillion, a rise of about VND21 trillion over the previous three-month period, which was also a new record. This sum came mainly from deposits by stock investors in the form of entrusting investment in a securities firm. The deposits sat in investors’ accounts and were not disbursed. It goes without saying that brokerage houses did not allow this amount of cash to rest idly but would deposit it into bank payment accounts.

That the stock market has grown exponentially recently has helped many enterprises successfully increase their chartered capital via the issuance of more shares to both existing and new shareholders. If a business does not have a plan in hand to use the newly mobilized capital, it would normally deposit it into banks. In other words, given the intention to develop capital markets, such as the stock market and the corporate bond market, banks’ capital is being shifted from individuals’ deposits to those of businesses.

What’s more, the development of the bancassurance service among banks has enticed savings account holders into applying for loans to buy insurance policies, which steps up the flow of capital from individuals to insurance firms, which in turn deposits money into banks because bank interest rates are higher than those of government bonds

Possible effects on banks

Deposits by enterprises into banks are oftentimes payment accounts, no-term deposits and marginal deposits, which means that the high growth of deposits from the corporate sector has significantly inflated CASA (Current Account Savings Account) of plenty of banks. Considering the effective no-term interest rates between 0 and 0.2%, banks with a high CASA ratio will reduce the average input capital cost and thus enhance their competitiveness.

Take Techcombank for example. This bank has been highly successful in the corporate bond sector for more than two years. Techcombank’s CASA ratio set a new record of 46% at the end of June 2021. Notably, no-term deposits of this bank surged by 55.1% year on year, of which no-term deposits of individual and corporate account holders jumped by 56.9% and 52.3%, respectively.

This success could be ascribed to the cut of deposit and money transfer fees applied by Techcombank. The bank has set a goal that by 2025, it will raise the CASA ratio to around 55%, which may be based upon the strategy for speeding up the development of bank agent channel. As a result, this bank is currently on top of the list of credit institutions that have the lowest input capital cost and thus have the highest NIM (Net Interest Margin).

However, it is also worth noting that banks are boosting deposits from enterprises by providing corporate bond issuance underwriting. If a bank cannot distribute all the corporate bonds issued, banks may buy out the rest. This way, an amount of banks’ capital will become capital financing for enterprises that deposit the same capital into banks when the latter is not in use.

This move will partly render unrealistic the capital mobilized by banks because it has been much amplified. If banks are to reschedule this source of capital by buying corporate bonds, and then the enterprises in question employ the mobilized capital to deposit it into banks, in the long run, this cycle not only heightens credit risks but also gradually spins liquidity out of control.

By Thuy Le

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