A bank teller counts cash at a transaction office in Hanoi. (Photo: VNA) Deposits at banks are mainly from customers’ payment accounts. Previously, dueto low interest rates on medium- and long-term deposits, a number of customersdid not pay much attention to transferring idle money in their payment accountsto term deposit accounts. Banks therefore benefited significantly from thelow-cost capital source.
However, the trend has changed after interest rates for medium- and long-termdeposits have sharply surged to hit nearly 10% per year.
VPBank last week continually increased interest rates for deposits under 10billion VND (402,536 USD) with terms of 12, 24 and 36 months by 0.2-0.4percentage point per year. The highest savings rate at VPBank is currently 9%per year, applied to online 18-month deposits.
VietinBank also raised the highest deposit interest rate to 8.2% per year foronline deposits from 12 months to under 36 months. With a rate hike of 0.8 percentagepoint per year for online deposits against those at the counter, VietinBank isbecoming the bank to offer the highest interest rate among State-owned banks.
Notably, though SCB had listed the highest interest rate in the banking system,it last week continued to sharply increase interest rates to approach the 10%threshold per year for terms of more than six months. The highest depositinterest rate at this bank currently increased to 9.75% from 9.3% per year for13, 15, 18, 24 and 36 month deposits. Interest rates for terms from 7 to 12months range from 9.4-9.65% per year and 9.35% per year for six-month term.
According to industry insiders, demand deposits, or current account savingsaccount (CASA), of many banks has started to decline since the second quarterof 2022. They said the sharp interest rate hike for medium- and long-termsavings has caused a large amount of demand deposits in current accounts toshift to savings accounts to enjoy higher interest rates.
Q3 2022 financial statements of banks showed the average CASA ratio of 27listed banks by the end of the third quarter of 2022 decreased by 1.6% to 16%against the beginning of the year. Eighteen out of 27 listed banks recorded a decreasein demand deposits.
Though Techcombank and MBBank topped the list with demand deposits at 135.43trillion VND and 171.39 trillion VND, the two banks’ CASA ratios declined by8.4% and 13.8% to 42.4% and 39.1%, respectively.
Notably, some banks recorded a sharp drop in CASA ratios, such as KienlongBank(-51.5%), VietABank (-51.2%); LienVietPostBank (-32.5%) and SaigonBank (-22.6%).
For banks, attracting a high proportion of demand deposits is very important,because it creates a cheap source of capital. Normally, the interest rates ofdemand deposits are much lower than term deposits, being only 0.1-0.3% peryear.
According to experts, the high CASA ratio will create a premise for banks toimprove their net interest margin (NIM) while keeping the lending rates atcompetitive levels in the market.
High CASA ratio is considered a remarkable achievement for banks. For example,MSB recorded NIM of 4.34% in the first nine months of the year, the bank’s mosteffective rate in recent years. The bank’s NIM growth has partly come fromeffective CASA attraction strategies in recent times such as promotingdigitalisation, launching various utility products and services.
ACB also flexibly deployed many solutions to mobilise CASA, helping the bank’sNIM grow. ACB’s CASA is forecast to reach about 27% by the end of 2022, whichis a relatively high rate in the banking system.
Banking expert Nguyen Tri Hieu said competition among banks to lure demanddeposits, or increase the CASA ratio, is becoming fiercer amid sharp interestrate hike of medium- and long-term deposits. Despite banks’ efforts to increaseCASA, it will be hard for them to keep CASA ratios as high as previously, evenoffering the highest rate for demand deposits.
Before September 2022, most banks listed the demand deposit interest rate atonly 0.02-0.2% per year. However, many banks have recently increased sharplyinterest rates for demand deposits, even hitting the cap of 1% regulated by theState Bank of Vietnam (SBV), to lure customers.
Under Decision No. 1812/QD-NHNN dated October 24, 2022 on the maximum interestrate for deposits in Vietnamese dong oforganisations and individuals at credit institutions and foreign bank branches,the SBV allowed banks to increase the maximum interest rate for demand depositswith terms of less than one month from 0.5% to 1.0% per year.
Techcombank, for example, earlier this month increased the interest rate ondemand deposits to 1% per year. Previously, despite other banks raising demanddeposit rates since the end of September, Techcombank still maintained the rateat 0.03%, among the lowest in the banking system.
VPB, Techcombank, ACB, Bac A Bank, OCB, Sacombank, SCB, NCB and Kienlongbankcurrently also list the demand deposit interest rate at 1% per year.
Besides the rate hike, banks have also introduced many policies to attractdemand depositors, such as exemption of transaction, money transfer andwithdrawal fees.
Notably, according to Hieu, as CASA is characterised by instability ascustomers can withdraw their demand deposits at any time, banks, especiallysmall-sized ones, must focus on improving their services to lure demanddepositors so as to increase their CASA rate.
“If a bank does not focus on developing digital services to enable it toconnect with more ecosystems to serve the diverse needs of customers, they willeither automatically choose another bank with better services, or withdrawtheir money to invest in other channels. At that time, the bank’s CASA willdecline,” Hieu said./.
VNA
