Banks slash deposit rates early March

Numerous banks are lowering their interest rates for depositors, citing low inflation, an intended drop in lending rates and ample liquidity as major reasons.

Within the first two weeks of March, deposit rates at various banks have dropped between 0.1 to 0.4 per cent a year, depending on different tenors. At Agribank, rates for deposits of one-month tenor have been lowered from 4.3 per cent to 4 per cent, while those of 12 to 18-month tenor fell 0.1 per cent to 6.2 per cent a year.

On March 11, Sacombank also announced a 0.1 per cent drop. As a result, deposit rates for four-month and five-month tenors at the bank are currently 4.8 per cent and 5 per cent, respectively. Similarly, depositors at HDBank, Eximbank, Techcombank and Dong A Bank are now experiencing a 0.1 to 0.4 per cent decrease in their interest rates.

The first reason for this widespread drop is the low inflation rate. According to banking expert Nguyen Tri Hieu, lower inflation forecasts have allowed banks to drop their deposit interest rates more easily. Indeed, a recent macroeconomic report from HSBC predicts the inflation rate to stay below 1 per cent for the next six months, before rising to 2.8 per cent in the latter half of 2015.

Another major reason is the possible cut on lending rates for 2015. The SBV expects interest rates on medium to long-term loans to drop at least by 1 per cent compared to 2014. This move is intended to boost credit and equip companies with enough capital to operate and expand.

Chairman of Dong A Bank Cao Sy Kiem stated, “To make profit, banks cannot lend money at lower rates than their deposit interest rates. As a result, it is understandable that banks are now slashing their deposit rates to be able to cut loan rates later.”

He added that the current margin between loan and deposit interest rates for Dong A Bank is 3.5 to 3.7 per cent a year.

The third reason is ample liquidity, which is a common theme for banks after the Lunar New Year. According to reports by the SBV’s Monetary Statistics and Forecast Department, the amount of bank deposits will rise by 4.5 per cent for the first quarter of 2015 and by 14.35 per cent for the entire year.

Source: Vietnam Investment Review