Deposit growth rate slows as credit continues to rise

The deposit growth rate is currently slower than that of credit growth; however, savings in banks are still considered a good choice due to low inflation.
The deposit growth rate is currently slower than that of credit growth;however, savings in banks are still considered a good choice due to lowinflation.

Statistics from the General Statistics Office showedthat as of March 20, deposits at credit institutions rose 0.94 percentfrom December 2014, while credit increased 1.25 percent.

NguyenHoang Minh, Deputy Director of the State Bank of Vietnam (SBV)'s Ho ChiMinh City branch, said deposits in the city had increased at a modestrate of 0.4 percent, while credit rose by 2.3 percent.

Experts attributed the slowdown mainly to a recent significant reduction in deposit interest rates.

Accordingto the SBV, the VND deposit rates have reduced significantly tocommonly 0.8-1 percent per year for on-demand and below 1 month terms,4.5-5.4 percent per year for 1-6 month terms, 5.4-6.5 percent per yearfor 6-12 month terms; and 6.4-7.2 percent per year for 12 month plusterms.

Meanwhile, the residential real estate market is warming up, so many depositors have withdrawn their savings to buy houses.

NguyenThanh Nhung, VietBank General Director, said that although savings atbanks had increased in the first quarter, a number of individualcustomers had withdrawn their deposits and even borrowed money frombanks to purchase a house as the lending rate for home mortgages hadfallen to reasonable rates.

A representative from a small bank,which declined to be named, admitted that although liquidity in thebanking system was good, banks still had to compete to increase theirdeposit market shares when deposit interest rates were low and were keptat the same rate at both large and small banks.

Besides interest rates, the representative said, banks also had to utilise more promotions to lure depositors.

Despitethe decline in deposit sources, experts agreed that due to lowinflation, the current deposit rates still ensure positive effectiverates, so savings are still a good choice for investment.

Tran DuLich, member of the Monetary and Financial Policies Advisory Council,said the rate cap of 5.5 percent per year for term deposits of under sixmonths still ensure positive effective rates. Depositors could even gethigher rates if they chose longer terms, he said.

However, Lichsaid, the flow of savings to other channels was also a good sign as itproved the potential for an economic rebound.-VNA

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