A bank teller counts cash at a transaction office in Hanoi. (Photo: VNA) During the period of high interest rates from September toDecember last year, a large amount of savings was poured into the bankingsystem. According to the statistics from the State Bank of Vietnam (SBV), bythe end of December 2022, total deposits at credit institutions amounted to 11.82quadrillion VND. A significant portion of these deposits was in six-month termsand will begin to mature soon.
In addition, the banking system primarily mobilised short-termcapital, with about 88% of deposits being of a 12-month term or less. Thismeans that in the near future, there will be more short-term deposits reachingtheir maturity periods.
Meanwhile, the interest rate for six-month deposits is currentlyonly 5.5% per year at large-sized banks and around 7% per year at smaller-sizedbanks, which is much lower than last year. The lower interest rates could deterthese maturing savings from returning to banks.
On the other hand, recent data from the SBV showed that creditgrowth is still higher than deposits. Specifically, by mid-May, capital raisedby credit institutions exceeded 12.4 quadrillion VND, an increase of 2.1%compared to the end of 2022. Meanwhile, outstanding loans of the whole economysurpassed 12.25 quadrillion VND, an increase of 2.72% compared to the end of2022. This data suggests that the liquidity situation of banks is still underpressure, while a large amount of savings from the end of 2022 is about tomature.
Hoang Cong Tuan, chief economist of Military Bank’s SecuritiesCompany (MBS), stated that deposit interest rates increased significantly fromthe end of the fourth quarter of 2022 to the first quarter of 2023, causingbanks' net profit margins to narrow. Consequently, banks have recently madenumerous moves to lower deposit interest rates. The larger banks have begun tolower the deposit rate to below 7%. In the future, banks will continue toreduce the rate.
Tuan said the SBV recently injected a large amount of money intothe banking system through the purchase of 6 billion USD, and at the same timeit opened up the open market operation (OMO) channel.
Tran Ngoc Bau, general director of financial data provider WiGroup, said the liquidity of the banking system is slightly redundant as theSBV pumped out 80 trillion VND through the OMO. It is forecast that theSBV can pump in an additional 30 trillion VND.
However, Bau said, the liquidity is only redundant in the shortterm as total credit in the economy is still higher than deposits. In addition,banks’ bad debts inched up while the bad debt coverage ratio decreased rapidly.Although there have been policies to delay and restructure the debts, the riseof the debts is still putting considerable pressure on banks' liquidity.
Even if the SBV injects more liquidity, banks will tend to protectthemselves first by hoarding money instead of boosting lending because the baddebts is increasing while the bad debt coverage ratio is plummeting. The SBV’spolicy interest rates may decrease further, but lending rates or deposit ratesof commercial banks will decrease more slowly, Bau forecast./.
VNA
