Profit crimped despite rising deposit rates

The market continues seeing sharp increase of interest rates this week, stifling profitability of traditional channels. Since the start of May, dong deposit interest rates of commercial banks have had a strong uptrend with the participation of many big players, following its downtrend last October.

HCM City Housing Development Commercial Joint Stock Bank (HDBank) on May 5 listed new dong deposit interest rates with the highest rate of up to 9.5 percent a year for 36-month terms; The deposit interest rates of 18 and 24-month terms also stayed at high levels, 9.1 percent and 9.3 percent respectively.

The new highest rate of HDBank exceeded the peak of 9.3 percent recorded by Saigon-Hanoi Commercial Joint Stock Bank at the end of April and was higher than attractive interest rates of deposit certificates that massively issued in recent time.

At that time, HDBank’s interest rates could be seen to be a special case and created a big gap compared to the general level in the market. However from May 8, depositors have another choice when Maritime Vietnam Commercial Joint Stock Bank (Maritime Bank) decided to raise the interest rate to 9 percent a year for 18-month terms, 9.3 percent a year for 24-month terms and 9.5 percent year for 36-month terms.

From May 5 to 14, the market saw a massive adjustment of dong deposit interest rates. particularly, some large commercial joint stock banks joined the playing file with new relatively competitive deposit interest rates.

From May 5, Asia Commercial Bank (ACB) sharply increased its deposit interest rates for almost all terms whereby the highest interest rate climbed to 8.75 percent a year for 36-month terms. Lately, on May 14, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) raised dong deposit interest rates by up to 1.3 percent a year for some terms, bringing the highest rate to over 9 percent a year.

Since the start of May, many other banks such as Ocean Commercial Joint Stock Bank (OceanBank), Vietnam Thuong Tin Bank (VietBank), Orient Commercial Bank (Oricombank) and others, although having not yet raised dong deposit interest rates directly, have encouraged depositors by bonus policies. For example, Vietnam Import Export Commercial Joint Stock Bank (Eximbank) offered depositors bonuses worth up to 10 million dong or 1 percent of total deposit amount.

According to Duong Anh Tuyet, manager in charge of personal customers at Maritime Bank, the main purpose of deposit interest rate increase this time is to meet capital demand of the bank in the upcoming time when credit demand is presenting a step-by-step recovery signal. “Also, facing up new movements in the market, we also want to ensure and promote benefits to depositors of Maritime Bank,” said Tuyet.

Clearly, there are two main pressures forcing banks to adjust deposit interest rates. Namely, like previous increase in deposit interest rates in March, the adjustment of deposit interest rates this time is to meet capital demand of the government’s interest rate subsidisation programme and promote consumer credit. From April, the statistics from the central bank showed that there was an unexpected credit growth compared to slow growth of credit in three months earlier. Such a move is also forecasted to be continued in next months when the government’s subsidised medium and long-term loans start being disbursed after the start-up month.

Raising deposit interest rates is also a necessary requirement of the current competition, added Tuyet. Interest rates remain the major competitive tool and promoting the attractiveness of such a tool is also to keep and attract clients.

And even when profit of the traditional channel, credit, is stiffened, deposit interest rates are still kept rising.
According to a recent analysis about prospects of the banking industry made by a securities company, in 2009, there are not many opportunities for banks to obtain non-interest profits such as investments into bonds, gold as in 2008; Meanwhile, incomes from credit is meeting various difficulties because the marginal interest rate is preserved at low level, fluctuating below 3 percent.

By this time when the basic interest rate continues being kept unchanged at 7 percent a year. The maximum dong lending interest rate that banks are allowed to apply for businesses is only 10.5 percent a year. The different between deposit and lending interest rates is narrowed to around 2 percent, or even only 1 percent. Profits from this channel is stiffened accordingly.
That does not mention that banks have to spend many other expenses for operations.

Banks can gain more profits from consumer credit when banks are allowed to apply the negotiated interest rate mechanism.
However, the proportion of consumer credit among total outstanding loans at banks is still low, some less than 10 percent. And when deposit interest rates highly increase, consumer lending interest rates grow accordingly. The market has seen the interest rate of such consumer loans climbed up to 15 percent a year, which has made borrowers to reconsider their capital demand.

 

Category: Finance