Finance & Banking
Last updated: Wednesday, February 22, 2017
New Order of Interest RatesPosted: Wednesday, October 12, 2016
A new order of deposit rates is shaping up as state owned commercial banks of Vietnam have adopted a lower rate policy.
One week after Vietnam’s state owned commercial banks decided to reduce deposit interest rates, most joint-stock commercial banks (non-state ownership) have not yet responded.
However, a new order of interest rates is temporary shaped. This logical order is more rational than the interest rate curve, as well as the difference reflecting the competition between the two blocks of banks on the market.
There is a black sheep in the every flock
According to data from the General Statistics Office, by September 20, 2016, mobilized capital of credit institutions increased by 12.02 percent (8.9 percent in same period in 2015); and credit growth of the economy reached 10.46 percent (10.78 percent in the same period in 2015).
That deposit growth rates are higher than credit growth rates is evident since the beginning of the year and also the difference of this year compared with previous years. In terms of credit, growth rate shows signs of slowing down and is still quite far behind the expected target of 2016 (18-20 percent).
The developments are bases for the state owned commercial banks to decide to reduce sharply VND deposit rates for terms of less than 12 months, from September 26; down from 0.3-0.5 percent, particularly with terms up to 0.6 percent / year.
One week after the event, most joint stock commercial banks have not joined in, except a few members had made adjustment a few days before that time and Lien Viet Post Joint Stock Commercial Bank ( LienVietPostBank) adopted response policy. Accordingly, the new order of VND deposit interest rates is shaping.
Since the beginning of this year, Bank for Foreign Trade of Vietnam (Vietcombank) has applied the lowest interest rates in the market, lower than the 0.3-0.5 percent / year compared to Bank for Investment and Development of Vietnam (BIDV) and Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) than in the short term. Meanwhile, in terms of less than 6 months, BIDV and VietinBank have competitive rates on par with joint stock commercial banks.
After deciding to reduce deposit interest rates on September 26, the deposit rate of BIDV and VietinBank has been close to Vietcombank’s. The difference between the two blocks is also widened. This is the condition for the small joint- stock commercial banks to take advantage of this gap to increase mobilisation at the peak season at the end of this year.
Even at this time, a number of joint-stock commercial banks are still applying high VND deposit interest rates, above 8 percent / year, especially the highest rate in Viet Capital Bank 8.3 percent, focusing on the long terms.
If you compare the highest level between the two blocks, the interest rate difference is 1.3 percent / year. And VND deposit interest rates were clearly uneven between commercial banks, but the yield curve shows a more reasonable, from low to high by a short-term to long term, to create conditions for restructuring mobilized resources more sustainable.
Consensus is needed
During a meeting of the Financial and Monetary Policy Advisory Council, Deputy Prime Minister Vuong Dinh Hue ordered “the ministries to lift ceiling interest rates in the 6 month term; revise the priority credit package on the basis of defining the fiscal policy and the tools of the banking system; research to increase deposit interest rates in medium- and long-term of commercial banks ".
In fact, the ceiling VND deposit interest rate of the current less than 6 months terms is a contemporary buoy; many banks have not used the ceiling level allowed. However, this is still a necessary barrier to limit disturbance in the case of high competitive pressures, as well as an administrative limit to "bend" the interest rate curve more reasonable.
As above, VND deposit interest rates are shaping the new order, with competition between the two blocks and between members. And after one week, joint stock commercial banks have not joined in.
LienVietPostBank is the first member of joint stock commercial banks to cut the interest rates. Explaining in a statement, the bank said that the move was made in response to the direction of the Prime Minister and the direction of the Governor of the State Bank.
According to Nguyen Duc Huong, Deputy Chairman of the Standing Board of LienVietPostBank, that four state-owned commercial banks decided to reduce deposit rates not to put pressure on other banks, but each member has their own reason.
"Reducing interest rates create conditions for reducing lending rates, which is not only good for businesses to lend loans but also good for the bank. But if all of the banks reduce interest rates, they would fall into the trap of liquidity because the deposits of people are sensitive. If that's so, the lack of resources will happen and banks will compete to raise interest rates again," said Huong.
Also according to Mr Nguyen Duc Huong, the value thing is the consensus in guidelines and policies. Policy and market signals go together, but enforcing better policies and better market function requires consensus from the participants.