Wednesday, September 28 2016

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Banks cut deposit rates for first time this year

Update: May, 31/2016 - 09:00
Customers in front of a Sacombank branch in Hà Nội. The central bank will take flexible measures to assist liquidity and capital sources for credit institutions. — VNS Photo Đoàn Tùng
Viet Nam News

HÀ NỘI – After numerous hikes in interest rates this year, joint stock commercial banks have cut deposit rates for the first time thanks to good liquidity amid a lending slowdown.

Eximbank last week inched down its six month deposits to 5.5 per cent from 5.6 per cent per year. The bank’s highest rate of 8 per cent for 36 month deposits worth more than VNĐ10 billion (US$444,500) has been also adjusted down to 7.8 per cent.

VP Bank also announced new interest rates with a cut of 0.1 per cent per year for deposits at all tenors.

Previously, Sacombank cut some rates slightly between 0.05 and 0.1 per cent per year. The bank’s rates for 6, 12 and 18 months were reduced to 5.7 per cent, 6.5 per cent and 6.55 per cent, respectively.

ACB also applied new interest rates, of which nine-month deposits were cut by 0.1 per cent to 5.5 per cent per year.        

Deposit rates listed at State-owned banks have so far remained unchanged though the banks were the first to cut lending rates recently. However, without a cut, the banks’ rates remain low compared with joint stock commercial banks.

For example, Vietcombank’s rates for 2-month and 6-month deposits are steady at 4.8 per cent and 5.4 per cent per year, respectively. The 6.5 per cent rate is unchanged for deposits with tenors of more than 12 months.

Experts attributed the deposit interest rate reduction to a good liquidity in banks amid a slowdown in credit growth recently.

According to statistics from the State Bank of Việt Nam (SBV)’s Credit Department, credit growth by May 8 was 3.69 per cent, which inched down against 4 per cent late last month.

“It can directly help the liquidity of the banking system improve dramatically in the short term for the past weeks,” analysts at the Bảo Việt Securities Company (BVSC) said.

Analysts at SSI Research said that a slowdown in lending could cause commercial banks to have a redundant liquidity, which would help reduce deposit interest rate.        

If the economic growth continues its slowdown as in the first quarter this year, and inflation remains low, experts said that banks could further cut interest rates.

Report from Maritime Bank’s Economic Research Centre also showed that developments on the inter-bank market and the open market operations (OMO) are also reflecting expectations about the possibility of reducing interest rates in the near future.

The movements of interest rates in the inter-bank market became noticeable when it continued to decline rapidly in the past few weeks. Đồng interest rates in terms of less than one month decreased from 0.9 to 1.8 percentage points, in which the shorter the terms, the stronger the decline.

This trend began since the end of April 2016, bringing đồng interest rates on the inter-bank market to the record low in the past nearly three years.

With low interest rates in the past weeks, transactions in the market became less active than before. Operations on OMO were also quite similar to the monetary market when credit institutions had no demand for borrowing through mortgage operations.

The central bank has continued the net withdrawal in five weeks through OMO, bringing the balance of mortgage operation to zero per cent since May 18.

“The developments of the inter-bank market and the OMO showed that the liquidity in the đồng of the banking system is pretty good. This can also be the consequence of the Government’s target to reduce the lending rate to support economic growth, giving rise to expectations in the market of the possibility of lower interest rates in the near future,” the report of Maritime Bank’s economic research centre said.

This deposit interest rate reduction is expected to help banks further cut lending rates.

SBV Governor Lê Minh Hưng has recently also pledged that the banking system would try to cut the lending rate by roughly 1 per cent this year.

The central bank also affirmed that it would regulate the inter-bank rates in accordance with the market interest rate. – VNS

 

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