Depositors frustrated by plunging interest rates

Thu Huong, from Ho Chi Minh City, experienced this firsthand when she withdrew VND200 million ($8,225) after a 12-month deposit, earning only 6% interest, amounting to VND12 million.

In contrast, last year, the same amount yielded an 11.7% interest rate, netting her VND23 million. "Interest rates have plummeted this year. I left my money in the bank because I wasn't sure where else to invest it," Huong said.

This year, banks have cut interest rates in response to economic difficulties, marking a stark contrast to the second half of last year. For instance, Vietcombank has reduced its one-month interest rate to a record low of 1.9% annually. Its 12-month term deposit rate is now at 4.8%.

In late 2022, banks were increasing their deposit interest rates to 11-12% annually for 12-month deposits. "After Saigon Commercial Bank experienced a run in October, 2022, and with the collapse of some American banks, local banks became more cautious with their liquidity," a banking leader explained.

The trend reversed in March when the State Bank of Vietnam lowered its policy rates to foster economic growth, leading to a continual decline in deposit rates. Most banks are now offering rates below 5% per annum for 12-month deposits.

High deposit interest rates increase banks' costs, often leading them to raise loan interest rates to maintain profitability. However, issuing new credit has been difficult this year due to business challenges, causing a decrease in bank profits.

"Lending is very risky," stated VPBank CEO Nguyen Duc Vinh, highlighting the rise in bad debts. VPBank, for example, has faced challenges in recovering unsecured loans, which don't require collateral.

This cautious lending approach is evident in this year's modest credit growth. As of December 13, credit had expanded by only 9.87% from the end of the previous year, compared to the government's target of 14-15%.

Analysts predict that this target is unlikely to be met. VIS Rating forecasts that banks will maintain low interest rates in the coming months to reduce costs, potentially improving credit growth next year as domestic businesses recover.

Vietcombank Securities anticipates a reduction in loan interest rates by 1 to 1.5 percentage points in the upcoming year.