Banks struggle to keep interest rates steady

June 12, 2017 - 09:00

From mid-March Sacombank has been offering certificates of deposit (CDs) denominated in đồng to individuals and companies.

VPBank had issued CDs to individual customers for tenors ranging from 18 to 60 months with an interest rate of up to 9.2 per cent for amounts of VNĐ5 billion and higher. — Photo VPBank

Thiên Lý

From mid-March Sacombank has been offering certificates of deposit (CDs) denominated in đồng to individuals and companies.

A sum of at least VNĐ10 million (US$441) for five years plus one day carries a coupon of 8.48 per cent per annum while a CD for seven years gets 8.88 per cent for the first year.

CD holders can get a preferred interest rate loan and assign the CDs to the bank at any time.

Earlier, VPBank had issued CDs to individual customers for tenors ranging from 18 to 60 months with an interest rate of up to 9.2 per cent for amounts of VNĐ5 billion and higher.

VietABank has issued long- and medium-term CDs at 8.2 per cent.

Many banks have also launched promotions including lottery draws with bonuses.

Market observers said there is intense competition among banks in terms of deposit interest rates to improve their funding.

The chief of a joint stock commercial bank in HCM City, who declined to be named, said credit growth has been high this year, and so some banks are indeed looking to raise funds.

In HCM City, the credit growth rate has been 6.25 per cent while deposits only grew by 1.77 per cent.

Credit demand is forecast to increase sharply, which has encouraged the lenders to mobilise funds.

Though the market has not yet showed signs of increasing lending interest rates, the sharp increase in the deposit interest rates is making companies fear this possibility in the near future.

At present, the common interest rates are 6-7 per cent for short- and medium-term loans to businesses in priority sectors, while long-term loans are offered at 9-10 per cent.

The rates for short-term loans to non-priority borrowers are between 6.8 and 9 per cent, while they range from 9.3 to 11 per cent for medium- and long-term loans.

The fear of rising interest rates is justified, with a director of a major bank’s branch in HCM City saying some banks have already hiked them by 0.5 per cent and even 1 per cent.

There are many factors that influence interest rates, including inflation, foreign exchange rates, fiscal policies and liquidity.

But according to analysts, the most important are the foreign exchange rates and inflation.

They said credit interest rates can decline only when forex rates are stable because when the dollar appreciates people draw their savings from banks to buy the greenback, forcing the banks to hike deposit interest rates and, in turn, lending rates.

The dollar appreciated by only 1 per cent in the first five months of this year.

As for inflation, data from the General Statistics Office shows that the consumer price index (CPI) actually fell in May by 0.53 per cent, the highest decline since 2008.

Liquidity in the banking sector is steady.

In the event, analysts are sanguine that there will be no pressure on interest rates and the central bank is in a good place in terms of regulating the rates.

They even believe that the rates can be cut at the end of this year if the Government’s Resolution on bad debt settlement is approved.   

The managers of many banks have said they have to keep their interest rates at a reasonable level to ensure liquidity.       

Nguyễn Văn Thắng, chairman of Vietinbank, said only when the bad debts are settled would lenders have more resources to do business and lower lending interest rates.

Dr Nguyễn Đức Kiên, chairman of the National Assembly’s Economics Commission, agreed with Thắng, saying if the resolution is approved interest rates can be cut by 0.75 percentage points.

Vietnamese products and foreign names

A study by VIBIZ in March of 75 shops and agents trading rice and 121 rice users in Hà Nội and HCM City, 64 per cent of Vietnamese rice varieties sold in the market had foreign names.

The survey also found that 53 per cent of consumers preferred foreign rice coming from Thailand, Cambodia and Japan.

Not only food products but also many others have been given foreign names.

Many fashion products sold at big shopping malls are Vietnamese but have foreign brand names.

Việt Tiến Garment Corporation, for instance, has given its products names such as Sam Sciaro, Manhattan, TT-up. Nhà Bè Garment Corporation sells Mattana and Novelty, and Phú Nhuận Jewelry Company has Jemma, targeting high-end customers.

Even high-rise buildings in the central areas of major cities have foreign names.

The tendency of giving foreign names to Vietnamese products can also be seen at property projects. The words "Plaza","Tower" and "Centre" were used to indicate the main use of the buildings.

“Times”, “Garden”, “City”, “Square”, “Riverside”, “Park”, “Orchards” have also been used for residential buildings.

Garment and footwear manufacturers and traders all believe that to popularise their brands it is necessary to choose foreign names which are easy to remember. They add that Italian-sounding names are seemingly the most popular because in people’s minds Italian products always lead the world in fashion and jewellery.

A real estate developer explained that foreign names not only help show the functions of the buildings but also the products’ “class”. Foreign names always indicate high-end products which have high prices.

Analysts said Vietnamese companies are encouraged to use foreign brand names because most Vietnamese consumers still prefer foreign products.

For instance, though instant noodles sold at Metro, Aeon and Lotte supermarkets cost as much as US$0.8 (VNĐ16,000), thrice that of a Vietnamese product, many people still buy them.

Buying foreign products gives them a sense of pride since it is a status symbol underlining their social acceptability and class.

Manufacturers are only too happy to play along.

The underlying reason is clear: consumers do not have trust in locally made products.

Many even prefer ’xuất dư’ products of famous brands to domestic ones.

Yuandan is a term used to describe products made in the same factory as legitimate luxury products without permission. They are made illegally from scraps and leftover materials and sold on the black market.

A survey by VIBIZ found that 57.3 per cent of consumers polled prefer these foreign fakes to legitimate Vietnamese goods.

Analysts said Vietnamese also prefer products sold through professional distribution systems.

On the other hand, many Vietnamese companies believe it is enough to focus investment into production and give foreign names to their products, and do not pay attention to building professional retail systems.

Because of this, foreign goods are able to push Vietnamese them off store shelves.

Võ Văn Quyền, director of the Ministry of Industry and Trade’s Domestic Market Department, told Thời Báo Kinh Doanh that most Vietnamese consumer companies are still small- or medium-sized and have limited resources, and so lack the capability to create professional distribution networks.

Analysts said to overcome this problem, the Government should provide credit and taxation support to Vietnamese producers to enable them to establish modern distribution systems and promote their brands. — VNS