Bank deposits remain preferred asset class despite collapsing interest rates

Bank deposits by retail customers increased for a 13th consecutive month in September and showed no signs of declining.

They totaled VND6.449 quadrillion (US$257 billion), up 9.95% from the beginning of the year, according to the State Bank of Vietnam (SBV).

In July and August, they had risen by VND6.39 and VND6.43 quadrillion.

By the end of November the average 12-month deposit rate had slid to 5.43% from 5.77% at the beginning of the month and 8.1% at the beginning of April.

Han, 26, a marketing worker in HCMC, said she preferred to keep her money in banks despite the lower returns because it is risk-free.

"[Besides] it takes less effort. For bonds and stocks, you have to spend time keeping track of [the market]."

Nhung, 27, an online English teacher who has two savings accounts, says safety is her first priority when investing.

The rates have been falling since April when the central bank cut key interest rates to spur investment and growth.

Among the four state-owned banks, Vietcombank has the lowest rate for 12-month deposits, 4.8%, while those for one- and three-month terms are even lower at 2.4% and 2.7%.

But other asset classes are even more unappealing.

The stock market is not appealing amid the cautious investor sentiment, Bui Van Huy, director of securities firm DSC’s HCMC office, was quoted as saying by Tuoi Tre newspaper.

It has not seen trading exceed VND48.5 trillion (around $2 billion) in a session, which happened during the Covid-19 pandemic when the SBV cut key interest rates.

In November the average trading on the Ho Chi Minh Stock Exchange was worth VND14.904 trillion, down 23.5% from September.

The bond market has been inactive after being rocked by the Tan Hoang Minh and Van Thinh Phat scandals, which wrecked investors’ confidence.

Do Anh Dung, chairman of real estate developer Tan Hoang Minh, was accused of issuing nine bond packages through subsidiary firms to steal over VND8.6 trillion (US$353.84 million) from 6,600 investors.

Van Thinh Phat's chairwoman Truong My Lan and other related people were arrested last October for alleged fraud related to the issuance of bonds worth trillions of dong (VND1 trillion = $42.56 million).

As for the real estate market, there were 6,000 transactions nationally in Q3, half the number in the same period last year and only 10% of the pre-Covid rate, according to a report published by the Vietnam Association of Realtors.

According to economist Le Xuan Nghia, the real estate market slump could continue until the third quarter of next year.

"Cautious investor sentiment is inevitable when the potential for growth is not clear," Huy said.

"Investors want certainty and savings accounts can provide that."

Dr Can Van Luc, chief economist at state-owned lender BIDV, said bank deposits would continue to be popular for the next year or two.