Vietnam’s interest rate rises in the lead-up to biggest national holiday
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Banks have hiked deposit interest rates by 0.1-0.5 percentage points as the country’s spending demand surges prior to Tet. Private lender Asia Commercial Bank last Friday introduced a new interest schedule with an increase of 0.2-0.3 percentage points in rates on most deposit terms. It also offers rates proportional to the amount of deposit. Techcombank, another of the larger private banks, since January 21, has hiked rates by 0.2-0.3 percentage points for terms of up to 12 months.
Earlier, in mid-December most private banks had upped rates by 0.1-0.7 percentage points, while state-run banks increased them by up to 0.5 percentage points.
However, there are also a few banks that choose to ‘go against the current’ by lowering deposit rates on same products. For instance, BIDV, Vietnam’s biggest lender by assets, has just lowered interest rates on its deposit rate schedule effective from January 22.
BIDV’s 5-month savings is now 5.2 percent interest, down from its previously 5.5 percent which was its approved ceiling rate.
Previously, at the end of December 2018, BIDV increased the 5-month term interest rate by 0.5 percentage points per year.
On the same day, VPBank also reduced the interest rate on their 6-36 months terms by 0.1-0.5 percentage points.
Specifically, the bank’s regular savings interest rate with 6-11-month terms is lowered by 0.2 percentage points, and is now 7 percent. The 12-month term interest rate is 7.05 percent; both 13 and 15 month terms are down 0.2 percentage points, and are now 7.2 and 7.4 percent respectively.
However, VPBank still currently holds the highest single interest rate in the market of 8.6 percent for its 18-36 month fixed term savings.
Experts believe that the negative adjustment of interest rates at some banks such as BIDV and VPBank may be for the purpose of restructuring to meet the banks’ individual capital needs, and does not yet accurately reflect the interest rate trend in the following months.
“For instance, BIDV, Vietnam’s biggest lender by assets, has just lowered interest rates on its deposit rate schedule effective from January 22.”
In fact, the period before the Tet Lunar New Year holiday is when cash is still in high demand in the economy, as businesses need to withdraw money to pay bonuses and salaries, and people will withdraw cash to spend for Tet which will start from February 5.
At the conference on tasks for the banking industry in 2019 on January 9, Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu said that banks have recorded a decline in deposits.
According to him, this is a phenomenon that banks need to keep their eyes on, to determine where the flow of capital has gone, to real estate or production, or another channel in order to make reasonable adjustments to their plans.
Tu said the SBV had adamantly stuck to its policy to stabilize interest rates despite very high pressure to drive rates upwards in 2018. Many small banks had raised short-term deposit rates to attract capital and improve liquidity, resulting in the central bank having to pump more money into the market or use other measures to limit and keep interest rates stable for businesses.
The deputy governor said the SBV had to balance between the conflicting interests of banks, savers and businesses to come up with an appropriate interest rate for the whole market.
The SBV targets credit growth of 14 percent this year, the same as last year. As a result, he noted, commercial banks will have to make better quality loans this year to avoid bad debt.
Questions & Answers
Q.Why are some banks increasing deposit interest rates in Vietnam?
Why are some banks increasing deposit interest rates in Vietnam?
Banks are hiking deposit rates because spending demand surges before Tet, the national holiday. Businesses withdraw money for bonuses and salaries, and people spend more, creating high demand for cash in the economy.
Q.Which banks have lowered interest rates despite the general trend?
Which banks have lowered interest rates despite the general trend?
BIDV, Vietnam's biggest lender, and VPBank have both lowered some deposit interest rates. BIDV reduced its 5-month savings rate, while VPBank decreased rates on its 6-36 month terms.
Q.What is the State Bank of Vietnam's stance on interest rates?
What is the State Bank of Vietnam's stance on interest rates?
The State Bank of Vietnam has consistently aimed to stabilise interest rates, balancing the interests of banks, savers, and businesses. They faced pressure to raise rates in 2018 but stuck to their policy.
Q.What is the reason behind some banks lowering interest rates?
What is the reason behind some banks lowering interest rates?
Experts believe the negative adjustment of interest rates at some banks, like BIDV and VPBank, may be for restructuring purposes to meet their individual capital needs, rather than reflecting a broader trend.
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