Favorable Capital Mobilization
Commercial banks have been reducing their interest rates consistently in recent months. As of October 11, the Big 4 group (Vietcombank, VietinBank, BIDV, and Agribank) offered a 12-month deposit interest rate of only 5.3% per year, 4.3% per year for a 6-month term, 3.3% per year for 3-month term, and 3% per year for a 1-month term.
Among joint-stock commercial banks, none offer a 7% per year savings deposit rate. The highest 1-month savings interest rate, at 4.75% per year, is offered by banks like BacABank, NCB, and SCB. DongABank offers the highest 6-month savings interest rate at 6.2% per year. For a 12-month term, GPBank has the highest interest rate in the system at only 6.55% per year.
Despite the declining interest rates, there is still a significant flow of funds into the banking system. Residential deposits, in particular, have witnessed substantial growth, with State Bank statistics revealing that the balance at the end of July surpassed the June record, reaching nearly VND 6,390 trillion, an increase of VND 6,707 billion.
At a recent regular Government press conference in September, Deputy Governor of the State Bank, Đào Minh Tú, reported that by September 30, commercial banks had mobilized approximately VND 12,900 trillion in total capital (including deposits from residents and economic organizations). This represented a 5.9% increase compared to the end of 2022, in contrast to the 4.6% increase reported during the same period the previous year.
Experts note that deposit interest rates have reached near pre-pandemic lows and are considered to be at their bottom. Despite the declining savings interest rates, depositors are still enjoying positive real interest rates when considering the 9-month inflation rate of approximately 3.1%.
This trend suggests that despite falling interest rates, banks are managing to attract capital due to the perceived risks associated with other investment channels. As a result, banks are actively issuing corporate bonds to maintain a steady influx of funds, which continues to be robust despite the low interest rate environment.
Shortage of Medium and Long-Term Capital
The Vietnamese banking system is grappling with an issue of excess cash due to an abundant inflow of funds but a slower outflow compared to the previous year. This imbalance has caused some challenges for the system, particularly a surplus of short-term capital and a shortage of medium and long-term capital.
By the end of September, the average interbank interest rates for overnight terms had dropped to 0.15% per year, 0.35% per year for 1-week terms, and 1.14% per year for 1-month terms. These falling rates are indicative of an excess of liquidity in the banking system, leading the State Bank to withdraw money through the issuance of bills. While VND interest rates on interbank rates have increased somewhat, they still remain at relatively low levels.
Despite this, several moves by banks suggest that they may not necessarily have too much money. Banks, in fact, accounted for 53% of the total pre-mature repurchase value in the first seven months of 2023, which amounted to VND 76,968 billion. This indicates a restructuring of interest rates, as previously issued bonds carried higher rates than the current ones. However, banks have been actively launching new bonds into the market.
Reports from the Hanoi Stock Exchange (HNX) in August revealed that 12 out of 22 bond issuances belonged to banks, with an issuance value exceeding VND 15,285 billion, accounting for 56%. According to data from the Vietnam Bond Market Association (VMBA), the banking industry accounted for the majority with VND 69,719 billion (43.5%) out of the total corporate bond issuance value of VND 160,253 billion.
The trend of issuing new bonds is expected to continue, with banks having significant plans for bond issuance in the current year. For instance, ABBank aims to issue a total of VND 6,000 billion in bonds, LPBank is planning to mobilize a maximum of VND 10,000 billion in individual bonds, and ACB has approved a resolution for a second private bond issuance plan in 2023 with a maximum value of VND 5,000 billion.
The fact that banks are actively issuing bonds even in the context of excess cash suggests that they may not necessarily have an excess of capital, but rather an excess of short-term capital and a shortage of medium and long-term capital. This issue is becoming more pronounced as the maximum ratio of short-term mobilized capital for medium and long-term loans has been reduced from 34% to 30% since October 1, 2023, as per the State Bank's Circular 08/2020.
