The Power of Compounding: How Agribank’s Entry into the Fray Could Propel the Savings Rate Rise in August and Beyond

Starting August 1st, Agribank has applied a new deposit interest rate with increases across multiple tenors. This is the first time in four and a half months that the bank has adjusted its deposit rates and the first time since November 2022 that Agribank has raised interest rates.

As a result, interest rates for 1-2 month tenors increased by 0.1% per year to 1.7% per year. Deposit rates for 3-5 month tenors also increased by 0.1% per year to 2.0% per year. Similarly, interest rates for tenors of 24 months and above were raised to 4.8% per year from 4.7% previously.

From August 1st, Sacombank also made significant increases to savings interest rates across all tenors. Accordingly, the interest rate for the 1-month tenor increased by 0.3% per year to 3.3% per year, the 2-month tenor increased by 0.4% to 3.5% per year, and the 3-month tenor increased by 0.3% to 3.6% per year.

The 4 and 5-month tenors were increased by Sacombank by 0.2% and 0.1% per year, respectively, to the same rate of 3.6% per year. Meanwhile, the interest rate for the 6-month tenor increased significantly by 0.8% per year to 4.9% per year.

After being adjusted upward by 0.6 – 0.7% per year, the interest rates for the 7 – 11-month tenors at Sacombank have increased to 4.9%. The interest rate for the 12 – 13-month tenor is now 5.4% per year, after a 0.5% increase per year.

Sacombank also increased interest rates for longer tenors. Specifically, the 15-month tenor increased from 5.0% per year to 5.5% per year, the 18-month tenor increased from 5.1% to 5.6% per year, the 24-month tenor increased from 5.2% to 5.7% per year, and the 36-month tenor increased from 5.4% to 5.7% per year.

Eximbank also raised its deposit rates from August 1st, but only adjusted the 12-month tenor. Specifically, Eximbank’s online deposit rates for individual customers increased by 0.4% per year to 5.4% per year (end-of-term interest payment) and 5.2% per year for customers who opt for monthly interest payments.

From August 2nd, Saigonbank simultaneously increased deposit rates for all tenors by 0.3% per year. According to Saigonbank’s latest online deposit rate table, the interest rate for 1-2 month tenors has increased to 3.3% per year; the 3-5 month tenor increased to 3.6% per year; the 6-8 month tenor reached 4.8% per year; the 9-month tenor is 4.9% per year; the 10-month tenor reached 5.0% per year; the 11-month tenor increased to 5.1% per year; and the 12-month tenor reached 5.8% per year.

Notably, Saigonbank has joined the group of banks offering deposit rates of 6.0% per year and above by raising the interest rates for the 13-24 month tenors to 6.0% per year and the 36-month tenor to 6.1% per year.

TPBank has also adjusted its deposit rates upward, with an increase of 0.2% per year for tenors ranging from 1 to 6 months. According to TPBank’s new rate table, the 1-month tenor has an interest rate of 3.5% per year; the 3-month tenor is 3.8% per year; and the 6-month tenor reaches 4.7% per year.

Deposit rates have started to pick up again since the end of the first quarter and have become more widespread in the second quarter and the beginning of the third quarter. In July alone, about 20 banks adjusted their deposit rates upward, with many banks raising their deposit rates two to three times.

Why are banks aggressively raising interest rates?

According to analysts, the low growth in deposits from individuals and businesses in the first months of the year, coupled with the recovery in credit growth, has prompted many banks to raise deposit rates to ensure a balance in capital sources, especially during the peak period at the end of the year. In addition, the State Bank of Vietnam’s (SBV) interventions through bond and foreign currency sales also affect the VND liquidity of banks.

With large-scale banks such as Agribank, VietinBank, and BIDV recently raising deposit rates, the deposit rate landscape is expected to continue to rise in the coming period.

KBSV Securities attributes the banks’ increase in deposit rates to liquidity shortages in the market due to the SBV’s exchange rate stabilization measures.

KBSV forecasts that deposit rates will continue to rise from now until the end of the year, reaching levels similar to the Covid-19 trough in 2020-2021 due to pressure from exchange rates and recovering loan demand.

In the short term, exchange rates remain the main pressure pushing deposit rates higher. In the base case scenario, KBSV forecasts that exchange rates will not cool down soon and may even experience localized tension at certain times, requiring the SBV to continue intervening by selling foreign currencies. This will be accompanied by a directive to maintain interbank interest rates at a sufficiently high level to deter exchange rate speculation. These factors will directly impact the system’s liquidity and drive up deposit rates in the primary market, especially among small and medium-sized private joint-stock commercial banks with less flexible sources of funds and those experiencing strong credit growth.

Moreover, the expected recovery in loan demand will drive capital mobilization needs, leading to a continued rise in deposit rates towards the end of the year.

In a newly published analysis report, MBS Securities also states that, in the context of credit growth accelerating at three times the pace of capital mobilization, banks are aggressively raising deposit rates to enhance the competitiveness of savings accounts compared to other investment channels in the market.

The analytics team believes that input interest rates will continue to rise in the second half of 2024 due to expected stronger loan demand in the latter half of 2024 as production and investment accelerate in the final months of the year.

“We forecast that the 12-month deposit rate of large joint-stock commercial banks could increase by another 0.5 percentage points to around 5.2-5.5% per year by the end of 2024,” MBS wrote in its report.