New interest rate order begins to take shape

Photo: Dao Ngoc Thach

One week after state-owned banks decided to significantly lower deposit rates, most of joint stock banks (with no dominant state ownership) have not yet responded.

However, a new order of deposit rates has temporarily taken shape. This order is more logical in terms of interest rate curve as well as interest rate difference which reflects the competition between two main groups of banks in the market.

According to recent data of the general Statistical Office, as of September 20th 2016, the mobilisation fund of credit institutions (CIs) increased by 12.02 percent (while it was 8.9 percent in the same period of 2015), and credit growth reached 10.46 percent (10.78 percent in the same period of 2015).

From the beginning of the year, mobilisation growth has always been higher than credit growth. This is a difference compared to the past years. Meanwhile, credit growth has showed signs of slowdown and is far behind the expected target in 2016 (18-20 percent).

These developments have contributed to create the basis for state-owned banks to make decision to strongly reduce mobilisation rates in dong by 0.3-0.5 percent on terms of less than 12 months from September 26th, and even up to 0.6 percent per annum on some terms.

A week after the interest rate cut of state-owned banks, joint stock banks have not yet made any move, except some members which already decreased the deposit rates a few days earlier and Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank).

From the beginning of the year, the Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) has been applying the lowest deposit rates in the market, which are 0.3-0.5 percent per annum lower than those of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (Vietinbank) on short terms. Meanwhile, for terms of less than six months, BIDV and Vietinbank used to apply similar deposit rate level compared to the group of joint stock banks.

After the move to simultaneously lower deposit rates on September 26th 2016, the deposit rates of BIDV and Vietinbank are now close to Vietcombank’s. The interest rate difference between the two groups of banks has accordingly widened. This is the opportunity for small joint stock banks with limited market share and competitiveness to take advantage of this gap to boost mobilisation in the peak season in the end of the year.

At this time, some joint stock banks are still applying dong deposit rates at fairly high levels of above eight percent, such as Viet Capital Commercial Joint Stock Bank (VietCapitalBank), focusing on long terms.

If comparing the highest deposit rates between the two groups of banks, the interest rate difference has reached over 1.3 percent per annum. The interest rate curve has been seen more reasonable from low to high levels corresponding to terms from short to long. This has created condition for the capital restructuring to be more sustainable.

In the last week, at a meeting of the National Advisory Council for Monetary and Fiscal Policies, deputy prime minister Vuong Dinh Hue directed the ministries and industries to do research on removing the ceiling interest rate of the six-month deposits; to review the preferential credit packages on the basis of delimiting the fiscal policy and tools of the banking system; and to increase the medium and long-term deposit rates of commercial banks.

In fact, many members are no longer under the pressure to increase deposit rate to the allowed ceiling level on terms of less than six months. However, it remains a necessary barrier to limit disturbance in the cases of high pressure of competition. It is also an administrative limit to make the interest rate curve more reasonable.

LienVietPostBank is the first joint stock bank to join the reduction of deposit rates this time. Explaining this move, the bank’s announcement mentioned that it aimed to respond to the direction of the prime minister and the direction of SBV’s Governor.

According to Nguyen Duc Huong, deputy Chair of the Board of directors of LienVietPostBank said that the purpose of the cut of deposit rates by state-owned banks is not to put pressure on other banks as in fact, banks has their own zone and different health.

Huong said that lowering deposit rates will create conditions to cut lending rates, which is good for the health of corporate borrowers and the banks themselves. However, if banks strongly race to reduce mobilisation rates, they will fall into liquidity trap, and it may cause a lack of resources and banks will at that time have to increase lending rates again.

Huong added that that in a different angle, the interest rate cut this time has brought an additional value, which is the consensus of the system with the policy. Although policy and market signals go together, there must be consensus of the participants in order to ensure the good performance of the market.

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