Banks slash deposit rates in preparation for cheaper loans

By Xuan Vu, Thanh Nien News

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 Photo: Ngoc Thang

Banks in Vietnam have been lowering interest rates on deposits over the past weeks, signaling borrowing costs will fall soon.  
BacA Bank now offers interest rates at 7.65 percent a year for long-term deposits, instead of 7.9 percent like before Tet, the country’s largest festival celebrated from February 15-23.
Early this month, Techcombank adjusted its deposit rates by 20-30 basis points, setting the rates on one-month deposits at 4.4 percent, three-month at 4.55 percent, and six-month at 5.02 percent.
LienVietPostBank has recently announced new interest rates with the highest now fixed at 6.6 percent for 24-month deposits. Meanwhile, its one-month deposit rate has been reduced to 4 percent.
Some bigger lenders like Agribank, Eximbank, and Dong A Bank, last week also lowered their deposit rates by 0.2-0.4 percent a year.
Currently Southern Bank offers the highest rate for one-month deposits, at 5 percent, while BIDV has the highest rate for 12-month deposits, at 6.8 percent.
Meanwhile, interest rates for US dollar deposits remain at 0.75 percent a year.
Speaking to Thanh Nien, Tran Du Lich, member of a financial and monetary advisory council to the government, said the cuts on deposit rates are an important step that the banks need to take before reducing their lending rates.
Long-term loans
A leader of a state-owned bank also said with the latest round of rate cuts which also targeted long-term deposits, the banks are paving the way for upcoming cuts on mid- to long-term lending rates by 1-1.5 percentage points, as per the state bank’s instruction.
Vietnam’s banks currently charge 7-9 percent a year for short-term loans, and 9.5-11 percent for long-term loans in the fields of business and manufacturing. 
The gap between lending rates and deposit rates is 3-4.5 percent a year.
Another reason for the rate cuts, according to the banker, who wished to stay unnamed, was that before Tet, the state bank pumped nearly VND200 trillion (US$9.22 billion) of cash into the market.
Now the money is returning to the banking system, meaning that banks’ capital adequacy is strongly increasing, he said.
Le Quang Trung, deputy general director of Vietnam International Bank (VIB), said Vietnamese banks’ cuts on deposit interest rates were driven by recent changes in inflation.
Vietnam’s consumer price index dropped 0.2 percent month-on-month in January, and then 0.05 percent in February.
As of December last year, loans in Vietnam increased by 11.8 percent compared to the end of 2013, according to the state bank’s figures.

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