Banks are now being pushed into a fierce mobilization race, which is putting added pressure on the corporate bonds channel which is expected to share the credit burden with banks.
Rising interest rates
The hottest news last week was of the deposit interest rate nearing 9% per year. This news spread after Viet Capital Bank announced that with VND 10 mln, the interest at the end of a six-month term would be 5% per year, for a nine-month term it would be 7.8% per year, for a twelve-month term it would be 8% per year, for a fifteen-month term it would be 8.2% per year, and for an eighteen-month term it would be 8.4% per year. This should not come as a surprise, as a few months back, An Binh Commercial Joint Stock Bank (ABBank) offered the highest deposit interest rate in the market at 8.8% per year for a thirteen-month term.
Currently, it is not difficult for people with idle money to find highly profitable channels for their deposits, because every bank is raising interest rates. Techcombank interest rate for a twelve-month term is at 6.5% per year, but if customers deposit upto VND 3 bln or more, an additional 1.5% is added, which brings the interest rate to 8% per year. NamABank is offering a Happy Future deposit program applicable since 26 September, in which for a nine-month term the interest rate is 11% per year for the first three months, for a twelve-month term deposit it is 9.9% per year for the first six months, for an eighteen-month term it is 8.9% per year for the first twelve months, and for a twenty-four-month term it is 8.4% per year for the first eighteen months. However, in the last six months of these terms the interest rate will be 4% per year.
A trick to attract deposits, which has been absent for a long time, is now being deployed by VietBank, which is giving away gifts and lottery prizes with a special prize of a savings book worth VND 1 bln. At Vietnam International Commercial Joint Stock Bank (VIB), the deposit interest rate on the online channel has been raised to a maximum of 7.9% per year, and if customers open an online savings book for the first time for VND 50 mln, they will receive VND 500,000 immediately.
Strain on liquidity
On 19 September, Saigon Investment published an article "VND interest rate climbing because of lack of liquidity". Since that time, deposit interest rates on the residential and institutional market have increased by about 0.5% to 1% within just four weeks. This means that the liquidity in commercial banks has not cooled down, as shown by the rise in interest rates in the interbank market. On 4 October, the overnight lending interest rate on interbank was at 7.88% per year. For a one-week term it was at 6.43% per year, for two-week term at 7% per year, for one-month term at 6.78% per year, for three-month term at 7.48% per year, for six-month term at 7.91% per year, and for a nine-month term at 8.77% per year.
Previously on 30 September, the interbank interest rate for the overnight term traded at around 4.93% per year, and for a one-week term at 5.48% per year. Only in the last week of September, the State Bank of Vietnam injected a net VND 28,103 bln through buying and selling out on the treasury bill channel. However, in the early days of October, banks still borrowed on interbank loans with an overnight interest rate equivalent to the deposit rate of twelve to twenty-four months in market 1, showing that liquidity is falling into tension.
This situation may not improve soon. According to the General Statistics Office, by 20 September, capital mobilization of credit institutions increased by 4.04%, and in the same period in 2021 it increased by 4.28%. Credit growth of the economy reached 10.54%, and in the same period in 2021, it increased by 7.17%. This is to say that the credit growth rate is 2.6 times higher than the capital mobilization growth rate. This difference will continue to create huge mobilization pressure, although this year's credit space is not much, so the interest rate increases in market 1 will be difficult to cool down.
From 1 October 2022, the ratio of short-term capital for medium and long-term loans of banks was adjusted from 37% to 34%, which is also a pressure for banks to increase long-term interest rates to attract medium and long-term deposits. In their latest report, Vietcombank Securities Company forecasts that the interest rate increase for the whole year of 2022 may range from 150 to 200 points, which is about 1.5% to 2%.
Pressure to increase
Deposit rates have increased, and lending rates have also moved up. The State Bank of Vietnam said that when adjusting interest rates, the goal of stabilizing lending interest rates was also taken into account in the last months of the year. Therefore, as the ceiling interest rates increased, the State Bank of Vietnam increased the operating interest rate and the deposit ceiling rate, while keeping the lending ceiling rate unchanged, showing that the management of the State Bank of Vietnam was directed towards the goal of stabilizing the lending interest rate.
However, loan interest stabilization as announced can only exist in priority areas, but in other groups the loan-borrowing relationship must follow market rules, making it difficult to apply administrative orders on interest rates. Currently, individual customers are starting to worry about the bank’s announcement to increase lending interest rates, ranging from 11% to 13% per year compared to 9.5% to 11% per year as applied before. At the same time, businesses that are not in the priority areas are worried when deposit rates increase.
Another channel that may also be affected by the raising of the deposit interest rates is corporate bonds. After the new Decree took effect, the corporate bonds market is moving and also affected by the interest rate shock rise. Currently, real estate companies are issuing corporate bonds with interest rates of about 9.5% to 10% per year. The increase in deposit interest rates will obviously put some pressure on the corporate bonds channel, while the real estate industry will have to mature VND 35,560 bln bonds this year and VND 61,3700 bln by 2023. If this group currently has difficulty accessing bank capital but mobilizes corporate bonds, they will have to push interest rates higher, which is also a great risk for them.