With ceiling interest rate for short-term deposits of 8 percent /year, and about 11 percent / year for over a one-year term, along with inflation expectations of less than 6.8 percent in 2013, many experts say that Vietnam saving deposits remain an attractive investment channel.
The Vietnamese government always asserts that it will manage interest rates in accordance with inflation target and macro-economic stability. Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh also has repeatedly stated that the agency is consistent in the direction of monetary policy to protect the power and value of the dong and to ensure positive real interest rates for depositors.
However, the interest rates consecutively decline in 2012, and it is forecast to continue to decline in 2013, which makes many people worry that their meagre savings are further devalued or not profitable. However, based on the current situation of the economy as well as the Government's commitment, the depositors of Vietnamese dong will definitely gain benefit.
At the recent press conference, the Governor said that in 2013, the central bank would run the interest rate policy carefully, flexibly and stick to the inflation target set by the National Assembly. Accordingly, the inflation target for 2013 is confirmed to be lower than the 6.8 percent of 2012. So, with maximum ceiling interest rates of 8 percent/ year, depositors will also gain positive profit. Even with the long-term deposit of over 1 year, compromised IR with banks is common from 11 -11.5 percent / year, so the profit margin is much higher.
Depositors always worry that the Vietnamese dong is depreciating against gold and the US$. However, it is clear that in the context that gold investment channels are tightened, the transaction is narrow, the central bank confirms that it has the right to impose the price of gold in 2013, so investing in gold will surely be limited. In addition, the balance of trade surplus, foreign exchange reserves doubled compared to 2011, as well as “anti-dollarization” policies of the central bank make the dollar become less interesting. Pham Xuan Hoe, Deputy Director of the Monetary Policy Department, SBV confirmed that the SBV is considering foreign currency deposit interest rates, if Vietnamese dong interest rates continue to decline, it’s more likely that the foreign currency deposit interest rates of 2 percent/ year for individuals and 0.5 percent / year for the organization will continue to be adjusted.
Since 2012, after lowering the ceiling interest rate 5 times, from 14 percent/ year to 8 percent / year, Vietnamese dong deposits in the banking system has increased sharply. Statistics from the central bank showed that, by the end of 2012, the deposits in dong increased by 36 percent year-on-year.
In an exchange with the Thanh Nien newspaper, economist Dr Bui Kien Thanh said in terms of 2013 trends when the government intends to keep inflation less than 6.8 percent, it’s possible that the IR will be adjusted down, to drag lending interest rates to about 10 percent/ year in order to help recover business. Then, deposit interest rate will oscillate with amplitude of about 3 percent over the lending interest rate which is at about 7 percent / year. Thus, depositors can be assured.
"In 2013, if mobilized interest rate declines, those who do business activities can use money to do something else to earn higher profits, but those who don’t run business will face difficulty due to frozen real estate and stable foreign currency, so their money will be returned to the bank,” Dr Thanh said.
Saying that the deposit channel is still attractive, former Governor Cao Sy Kiem still warned of the risk to the stability of the Vietnam dong in 2013, when the local currency will suffer big challenges. First is that the actual inflation might not be as expected. Secondly, the prices of food will rise again, along with the likely continued electricity price rise, which can directly affect production costs of many industries and drag CPI to increase. In 2012, the trade surplus, replacing the tens of billions of dollars of trade deficit of previous years, is good news to help the trade balance surplus, to maintain the exchange rate and protect the Vietnam dong value. However, the GDP in 2012 increased at the lowest rates over the years, export surplus is unstable, the economy will return to real values that can be exposed to the fluctuations in exchange rates, which are factors threatening the value of the Vietnam dong to which managers must be alert.
Too much deposit is also worrying
"Many people today still believe that savings is the best due to inflation, risk and unsafe investment uncertainty," said Dr Nguyen Duc Huong, Vice Chairman Lien Viet Bank. However, he also said that if the deposit channel is so attractive, it will be the risk to the economy, because then people will take all the money to banks and do not invest in business. "Banks which mobilize too much load but dare to lend will face losses. They own too much capital then lend it at any price, while the economy faces congestion and bad debt is very dangerous. The important issue is making sure to keep the value of the Vietnam dong, but promoting investment, through the resolution of bad debts and inventories,” Mr Huong said.
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