Banks forced to hike interest rates as deposits dry up

"Now, it is very difficult for us to mobilize capital," the deputy general director of a state-owned bank told VnExpress anonymously.

In the first half of this year, people put more money in banks than in the last two years during the Covid-19 pandemic, but deposit mobilization speed still lagged credit growth.

Credit growth has been around 10% while deposits grew at less than 4%, the highest difference in rates in the last five years.

Money has been flowing into business as the pandemic started to wind down, with corporate customers tending to pull money out of the banking system for this as lending came to a halt after most banks used up their quotas.

According to data from the State Bank of Vietnam, deposits by organizations in the first half of this year grew by only 3.61%, the lowest half-yearly rate in the last five years. With credit growing sharply this year but not deposits, banks have got into a deposit interest rate race.

Since mid-August nearly 20 banks have increased their rates. The average interest rate for six- and 12-month terms has increased by 0.5 percentage points this year.

Many banks also offer other promotions to attract deposits, especially long-term. The ratio of short-term deposit mobilization for medium and long-term loans decreased from 37% to 34% from October, prompting banks to eye long-term deposits, including those with terms of more than 12 months.

Interest rates in the interbank market are also increasing rapidly. They began to surge in mid-July, sometimes climbing to 10-year highs as the central bank embarked on open market operations (OMO) by issuing treasury bills and selling dollars to defend the dong.

On September 21, the overnight interest rate was 4.61% a year compared to just 0.96% two months ago.
SSI Securities estimated by the end of August, the central bank had mopped up nearly VND115 trillion ($4.85 billion) through OMO and VND70 trillion by selling foreign exchange.

In the context of low liquidity, many securities companies forecast deposit interest rates to keep rising depending on the availability of funds in the interbank market.

VNDirect Securities Corporation said the rates could increase by 0.3-0.5 percentage points in the second half of the year.

It expected interbank interest rates to cool down in the coming weeks from the current 4-5%.

Vietcombank Securities Company said deposit interest rates would increase by 1-1.5 percentage points for the year, and lending interest rates would also rise.

VNDirect analysts said deposit interest rates would rise rapidly in the second half when banks have their credit limits increased.

For the first time in two years, Vietnam's central bank has increased two of its policy rates by one percentage point each from Friday after the dong slumped to a record low.

The refinance rate will be increased to 5% while the discount rate will be raised to 3.5% starting Sept. 23, according to the State Bank of Vietnam.