The Rising Interest Rates: Unlocking the Reasons Behind the Surge

On August 1st, Agribank adjusted its interest rates, with a 0.2% increase for 1-2 month terms, now at 1.8% annually. For 3-5 month terms, there was a 0.3% hike, bringing the rate to 2.2%. Meanwhile, terms ranging from 6 to 9 months witnessed a new rate of 3.2% annually, a 0.2% increment.

Consequently, three out of four state-owned banks have raised their deposit rates since April. Joining the trend, HDBank also increased its online deposit rates for short-term tenors of 1 to 5 months to 3.55% annually, a 0.3% boost. Additionally, a 0.2% rise was applied to 6-month term deposits, reaching 5.1% annually—surpassing the 4.9% threshold after several months.

In the past two weeks, 16 banks, including MB, VIB, VPBank, Sacombank, ABBank, and BVBank, have adjusted their interest rates by 0.1% to 1.3%. ABBank made the most significant adjustment, ranging from 0.6% to 1.3% for online deposits with terms of 3 months or longer. Their 12-month term now offers an industry-leading rate of 6.2%.

At other banks, interest rates of 6% and above are only available for long-term deposits of 15 to 24 months, as seen at SeABank, Oceanbank, NCB, and BVBank. The wave of increasing savings interest rates gained momentum in early April. At that time, the highest rate for a 12-month term hovered around 5% annually, but it has now climbed to 6.2%. Additionally, the number of banks offering rates of 5% and above has doubled from 12 to 26.

Experts suggest that as we enter the third quarter, the demand for credit is recovering, prompting banks to attract more deposits to meet future credit needs, especially with the 15% credit growth cap set by the State Bank of Vietnam at the beginning of the year. Economist Nguyen Tri Hieu attributes these adjustments to a balancing act, aligning with the profitability of other investment channels like USD and gold during this period.

Mr. Hieu analyzes that with Vietnam’s inflation target set at 4-4.5% for 2024, and current deposit rates ranging from 4.7% to 6.2% annually, savers are still earning a meager positive real interest rate if inflation is not kept in check. Moreover, with exchange rates already high and expected to remain volatile, he predicts a potential rapid increase in exchange rates due to year-end import pressure. Thus, he asserts that “deposit rates need to rise to protect the dong.”

According to financial institutions, the banking system remains flush with liquidity, and the State Bank of Vietnam maintains its loose monetary policy. Meanwhile, credit growth is expected to rebound in the second half of the year, leading to a possible 0.5-1% increase in deposit rates across various terms. The latest data from the State Bank of Vietnam reveals that deposits from the population to credit institutions surged to nearly VND 6.7 quadrillion by the end of March, reflecting a 2.2% increase compared to the end of last year.

Following a decrease in January, idle money flowed back into banks in February and March. Notably, March witnessed deposit rates at their lowest for most terms, yet deposits still witnessed a substantial increase. Experts attribute this to the unpredictable and unstable nature of other investment channels, coupled with low profitability, making banks an attractive option despite lower interest rates.

Financial analysts and bankers agree that with deposit rates for 12-month terms ranging from 5% to 6%, investors can be assured of a fair deal without incurring significant losses.