Small banks increase interest rates to raise capital on Tet occasion

04-Feb-2019 Intellasia | Dau tu Chung khoan | 6:00 AM Print This Post

While Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), Vietnam Bank for Agriculture and Rural Development (Agribank) and most recently Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), and Vietnam Prosperity Joint Stock Commercial Bank (VPBank) reduced the deposit interest rates for all tenors, surveys in the market showed that rate increase is still the main trend in many small banks.

“Raise capital” comply with regulations

At the Conference to carry out banking industry tasks in 2019 on 9th January, Vietcombank’s Chair Nghiem Xuan Thanh unexpectedly announced that Vietcombank decided to lower the lending interest rate by 0.5 percent per annum (p.a.) for the priority areas.

“The reduction of interest rates is estimated to reduce the bank’s profit by 450 billion dong, but Vietcombank is determined that it is both a political task to share the difficulties with businesses”, Thanh said.

Also at the Conference, Trinh Ngoc Khanh, Chair of Agribank’s Board of directors said: “With our internal resources, Agribank is ready to compete fairly with other commercial banks on lending interest rates. Responding to the encouragement of the Governor of the State Bank of Vietnam (SBV), right from the beginning of 2019, Agribank has reduced lending interest rate further by 0.5 percent p.a. for five priority sectors under the Circular 39/2016/TT-NHNN (including medium and long-term loans)”.

Recently, BIDV also lowered 5-month savings interest rate from the regulated ceiling of 5.5 percent p.a. to 5.2 percent p.a. Similarly, VPBank reduced 0.1-0.5 percent p.a. of interest rate for tenors of six to 36 months.

However, on 25th January, Asia Commercial Joint Stock Bank (ACB) made a new interest rate increase of 0.2-0.3 percent p.a. for most tenors. Accordingly, deposits of 6-9 month can enjoy interest rates of 6.4-6.7 percent p.a., up 0.3 percent compared to the previous quotation. The interest rate for 3-month tenor with the amount of 200 million dong is 5.4 percent p.a., an increase of 0.2 percent p.a. In addition, the larger the deposit amount is, the higher the interest rate.

Similarly, Hochiminh City Development Joint Stock Commercial Bank (HDBank) also has adjustments on deposit interest rates for customers opening new saving cards for 6-month, 9-month, 12-month, 13-month tenors receiving interest periodically or at maturity will get bonus rate of up to 0.6 percent p.a., maximum interest rate for savings deposit is up to 7.5 percent p.a.

At Vietnam Technological and Commercial Joint Stock Bank (Techcombank), from 21st January, the bank increased the savings interest rate for tenors from 1-5 months by 0.2-0.3 percent p.a.; increase rate for nine month tenor and 13 month tenor or more by 0.1 percent p.a.; 12-month rate increased by 0.2 percent p.a. At Viet Capital Commercial Joint Stock Bank (Viet Capital Bank), the 12-month deposit interest rate remained high at eight percent p.a., the 18 month rate is 8.5 percent p.a., and the rate for 24 month tenor or more is at 8.6 percent p.a.

Besides, some other banks also adjusted deposit interest rates upward in the Lunar New Year (Tet) holidays, but the programme was implemented separately in a short period of time, not applicable to ordinary deposits.

Dr Nguyen Tri Hieu, a financial expert, said that it is normal for banks to promote mobilisation to ensure liquidity, especially during Tet, when people have the habit of withdrawing and holding cash. Not to mention, the rate of short-term capital mobilised for medium and long-term loans of Vietnamese banks is still quite high, so it is necessary to mobilise more capital.

Therefore, although it is stipulated that banks must ensure the ratio of short-term capital used for medium and long-term loans at 40 percent or less from the beginning of 2019 instead of 45 percent as in 2018 which was published for a long time, it is not easy to carry out.

“Big banks lowered lending rates, but obviously there are many banks that have to “raise capital” to meet the regulations of SBV” said Dr Hieu said.

Sharing with the Dau Tu Chung Khoan, a senior leader of Vietcombank said that the recent adjustments of dong deposit interest rates stemmed from a number of reasons: first, this is the preparation of banks with the expectation of mobilisation demand to increase in the year, especially when considering seasonal factors. Secondly, this is considered the preparation of credit institutions for capital sources, focusing on long tenors with the assumption that the interbank interest rates can be higher in 2019.

Deposit rates will not increase much

Research from analysts of Bao Viet Securities Company (BVSC) stated that inflation will have a big impact on mobilising interest rate. Accordingly, the 2019 Consumer Price Index (CPI) is expected to fluctuate around 3.5 percent (equal to that of 2018), so the interest rate level in 2019 will likely not change much compared to the end of 2018. However, aiming to meet the regulation on ratio of short-term capital used for medium and long-term loans reduced from 45 percent to 40 percent, mobilising interest rates may increase particularly in some banks, but the increase will not be too much (less than 0.5 percent).

“We believe that the deposit interest rate is likely to continue to increase under the pressures in 2019. The mobilisation interest rate in 2019 can create a new level with a small difference of about 50 basis points compared to that of 2018 “, analysts of Vietcombank Securities Company (VCBS) forecast.

Accordingly, the main factors that put pressure on interest rates in 2019 are the increased mobilisation demand of commercial banks to meet the requirements on safety ratios; inflation pressure increased significantly over the same period; the possibility that the US Federal Reserve (Fed) will raise US dollar interest rates will put pressure on the relative interest rates of dong.

Nguyen Thi Hong, SBV deputy Governor said that in the past year, SBV continued to carry out synchronously monetary solutions and banking activities to regulate and support liquidity for credit institutions, stabilising the currency and foreign exchange markets and controlling inflation; thereby creating a basic foundation for credit institutions to lend at reasonable interest rates, share difficulties with customers. As a result, although the interest rates of the countries in the world over the past time tended to increase, many central banks tend to gradually shift to the implementation of tight monetary policy but the interest rate level in Vietnam is basically maintained stable.

According to Hong, besides the favourable factors from the achievement of macroeconomic stability, inflation control, stabilising the foreign exchange market in 2018, there will be challenges affecting the management of monetary policy and interest rates in particular in 2019, for example, the Fed continues the roadmap to raise interest rates, central banks of countries tend to tighten monetary and risks from basic commodity prices and global inflation increase, etc.

In this context, interest rates will be managed in a way that is consistent with macroeconomic developments, inflation, and the money market in line with monetary policy objectives.

“Accordingly, on the basis of following macroeconomic developments, inflation and monetary and domestic financial markets, SBV governs interest rates flexibly, combining synchronously with monetary policy and other instruments to regulate and support liquidity for credit institutions, stabilise the money and foreign exchange market, control inflation according to targets, stabilise the macro economy, thereby contributing to creating a favourable business environment for businesses and the economy “, Hong emphasized.


Category: Finance, Vietnam

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