This surge in interest is particularly notable as many savings deposits with 12- and 13-month terms are maturing. However, depositors are finding this year to be less favorable, as deposit interest rates continue to hit new lows.
Competition to Lower Deposit Interest Rates
On January 12, Vietcombank made headlines by further reducing deposit interest rates across all terms. The adjustments included a reduction of 0.1-0.2%, resulting in annual interest rates of 1.7% for 1-2 month terms, 2% for 3 months, 3% for 6-9 months, and 4.7% for 12 months or more. Notably, Vietcombank's highest interest rate now falls below the State Bank's prescribed ceiling of 4.75% per year for deposits with terms ranging from 1 month to less than 6 months.
Other major banks such as Agribank, VietinBank, and BIDV followed suit, with interest rates approaching these newly established lows by January 17. Agribank, for instance, decreased interest rates to 1.8% per year for 1-2 month terms, 2.1% for 3-5 months, 3.3% for 6-11 months, 5.5% for 12-18 months, and 5.3% for 24 months. VietinBank adjusted its rates to 1.9% per year for terms of 1 month to less than 3 months, 2.2% for 3 months to less than 6 months, 3.2% for 6 months to less than 12 months, 5% for 12 months to less than 24 months, and a maximum of 5.3% for terms exceeding 24 months. BIDV's deposit interest rates align closely with those of VietinBank.
In a press conference to outline the banking mission for 2024, Deputy Governor of the State Bank, Đào Minh Tú, stated that the current interest rate level has reached the lowest point in the past two decades. In a recently released report, HSBC, while remaining cautious about the risks of price increases, expects the State Bank to maintain the policy interest rate at 4.5% throughout 2024. This aligns with predictions made frequently in the recent past. The Deputy Governor also emphasized that, from a management perspective, if interest rates can be lowered, they will be. The State Bank does not foresee any plans to increase interest rates in 2024.
The decrease in mobilization interest rates is not exclusive to the major banks (Big 4 group) but also extends to the group of joint-stock commercial banks engaged in lively competition. Since the beginning of January, 23 joint-stock commercial banks have adjusted deposit interest rates downward. Notable names include SHB, VIB, OCB, KienLongBank, NCB, Viet A Bank, and GPBank, which have reduced interest rates twice. Specifically, for these banks, 1-month term interest rates range from 1.8% to 3.95% per year, 6-month rates are at 5.25% per year, 12-month rates at 5.8% per year, and over 12 months at 4.75-6.3% per year. Some banks offer "attractive" interest rates for individual customers, although the conditions to qualify are quite challenging. For instance, an 8.2% per year rate applies to a minimum deposit of VND 300 billion, or 10% per year for newly opened deposit balances of VND 2,000 billion or more.
How long will the excess money persist?
Over the course of just one year, deposit interest rates have experienced significant fluctuations, decreasing rapidly from their peak to a bottom level. In the first quarter of 2023, many depositors who had recently placed their money in one bank withdrew it and opted for another bank offering higher interest rates. Several banks even engaged in a competitive "overnight" race, offering interest rates as high as 11.5-12% per year. However, by the end of 2023, the situation had undergone a shift as depositors were no longer able to negotiate high-interest rates due to banks having excess funds. Despite this, money continued to flow massively into the savings channel.
Data from the State Bank reveals that residents and economic organizations deposited an additional VND 1,680,000 billion into the banking system in 2023, marking a 13.2% increase compared to the end of 2022. Particularly in the fourth quarter of 2023, deposits into the system surged by over VND 800,000 billion. Consequently, the total amount of deposits in the banking system is expected to surpass VND 13,500,000 billion by the end of 2023, setting a record as the highest in the history of the banking industry.
Earlier this year, the Big 4 banks disclosed preliminary business results that highlighted positive capital mobilization in 2023. Vietcombank reported a market capital mobilization of approximately VND 1,410,000 billion, marking a 12.1% increase compared to 2022. BIDV achieved VND 1,890,000 billion, representing a 16.5% increase compared to the end of 2022. VietinBank surpassed VND 1,500,000 billion, reflecting a 13.7% increase. The overall balance of capital mobilization for the Big 4 group in 2023 rose by nearly VND 778,900 billion, equivalent to a more than 13% increase compared to the same period in 2022.
On a broader scale, excess liquidity remains prevalent across the entire banking system. As of the end of 2023, the overnight VND interest rate on the interbank market stood at 0.51% per year, 1 week at 3.23% per year, 1 month at 3.42% per year, and 3 months at 3.33% per year. However, by January 16, 2024, these rates had significantly decreased to 0.15% per year for overnight, 0.29% per year for 1 week, 0.49% per year for 2 weeks, 1.06% per year for 1 month, and 2.98% per year for 3 months. Many banks also observed a recovery in demand deposits in the third quarter of 2023, with funds flowing into banks as investors await and seek out potential investment opportunities in a market where other channels present limited hidden risks.
The aforementioned developments set the stage for the trend of interest rate reductions, but the crucial factor pushing interest rates to persistently decline to the bottom is still the output factor. Credit growth in 2023 is anticipated to be sluggish, experiencing a sudden sharp increase only in the second half of December. Among the Big 4 banks, BIDV and VietinBank exhibit credit growth higher than the industry average, at 16.66% and 15.6%, respectively. In contrast, Vietcombank only saw an increase of 10.6%, and Agribank increased by 7.4%. This suggests that credit growth might be localized to certain banks, and a comprehensive understanding would require waiting for the release of financial statements for the fourth quarter of 2023.
Despite the significant decrease in input interest rates, lending interest rates have not met the market's expectations. The State Bank of Vietnam (SBV) indicated that the average interest rate for new loans would decrease by 2-2.2%, surpassing expectations. However, it is worth noting that the actual deposit interest rate from banks for a 6-month term has decreased by 10-11% per year to 5-6%, while the reduction in loan interest rates has been relatively slow. Some banks have recently announced substantial reductions in lending interest rates, but these adjustments are limited to specific credit packages or come with short-term incentives.
Current deposit interest rates are at record lows compared to recent years. Therefore, further reductions in operating interest rates may not effectively stimulate the economy and could potentially divert mobilized capital to other investment channels.
