What’s behind banks’ deposit interest rate cuts?

Six commercial banks have announced reductions in deposit interest rates since the beginning of December, namely LPBank, VIB, IVB, ABBank, Kienlongbank and BacA Bank.

However, only two of them – LPBank and Kienlongbank – have really slashed interest rates. Other banks, either have applied reduced interest rates for short-term deposits, or have only cut interest rates after pushing interest rates up high after the State Bank of Vietnam (SBV) on November 27 sent a dispatch to credit institutions and requested to set deposit interest rates at reasonable levels.

Indovina Bank (IVB) on December 1 raised the interest rates of all-term deposits (1-36 month), offering up to 6.5 percent per annum for 24-month or longer-term deposits.

One week later, IVB eased the 13-18-month term deposit interest rates from 6.3 percent to 6.05 percent, and 24-month or longer-term deposits from 6.5 percent to 6.2 percent.

IVB remains one of the commercial banks maintaining highest interest rates in the market for 13-month and longer-term deposits.

As for ABBank, it raised interest rates three times within November to 6.3 percent for 24-month 6.2 percent for 15-18-month deposits.

In early December, ABBank cut the interest rates of these long-term deposits (the highest is 5.7 percent per annum), but raised 1- and 12-month deposit interest rates.

In the latest move, ABBank raised interest rates of 3-12-month deposits by another 0.2-0.25 percent per annum, becoming the first bank which raised interest rates twice within one month (December). 

BacA Bank has eased 1-36-month deposit interest rates, but prior to that, in October, it raised the interest rates twice within a month.

At some moments, its deposit interest rates climbed to 6.15 percent, applied to 18-36-month deposits worth less than VND1 billion, and to 6.35 percent, applied to deposits worth over VND1 billion.

After interest rate cuts, the bank’s highest interest rate is still 5.95 percent (less than VND1 billion deposit), and 6.15 percent (over VND1billion), among the highest levels in the market.

LPBank has reduced its interest rates for 1-11-month deposits, the second adjustment since early November, interspersed with an interest rate rise. In general, the reductions were sharper than increases.

KienlongBank has kept interest rates stable as it did not make any adjustment in the last three months, from August to October.

In the latest move, it slashed interest rates by 0.4-0.6 percent per annum for 1-60-month deposits, the most significant cut since the day the bank raised its interest rates by 0.2 percent for 1-6-month deposits late last month.

Analysts said the signals of interest rate cuts have become clearer.

Upward trend

Meanwhile, eight banks have raised their interest rates recently: DongA Bank, VPBank, OCB, MSB, GPBank, TPBank, ABBank and IVB.

Le Xuan Nghia, a member of the National Advisory Council for Financial and Monetary Policies, warned that the interest rate increases will lead to lending interest rate increases.

There are two major reasons behind banks’ decisions to raise interest rates. First, banks need capital to disburse for huge projects. Second, banks have problems with liquidity. They may have huge bad debts and need resources big enough to cover.

Vo Tri Thanh, a respected economist, said interest rates are influenced by many factors. Analysts recently mentioned the possibility of monetary policy loosening in developed economies, especially under the Trump administration.

Thanh predicted that deposit and interest rates would increase ‘a little’ in the immediate time because of their business cycle. However, he believes that interest rates will decrease in long term.

Though affirming the downward trend in the long term, he warned that the reductions won’t be as sharp as expected. The world’s economy, including countries which are Vietnam’s big trade partners, is predicted to continue facing difficulties. The countries will also have to ease interest rates to support their economies. SBV needs to apply policies to reach various goals – exchange rate stabilization and inflation congestion.

Dinh Trong Thinh, a respected economist, believes that it is almost impossible to keep interest rates at low levels, but banks need to restrain interest rates as long as possible.

Tuan Nguyen