The Two Main Reasons Behind Rising Deposit Interest Rates

11 Banks Increase Deposit Interest Rates

According to the savings interest rates of 28 commercial banks as of September 17, some banks continue to adjust interest rates, increasing by 0.1-0.7 percentage points (%) compared to the end of August, mainly for short-term deposits of 1-3 months.

Since the beginning of September, 11 banks in the market have increased their deposit interest rates, including: Joint Stock Commercial Bank (JSB) Dong A Bank, OceanBank JSB, VietBank JSB, Global Petroleum Joint-Stock Commercial Bank (GPBank), Agribank, Bac A Bank JSB, NCB JSB, OCB JSB, BVBank, and PGBank JSB.

The increase in deposit interest rates mainly occurred in short-term deposits. For online savings, customers often receive higher interest rates than over-the-counter deposits, ranging from 0.2-0.3 percentage points.

Notably, in addition to the regularly published interest rates, some banks offer special interest rate policies ranging from 7-9.5%/year, targeting various customer segments, depending on the deposit amount.

For example, at Vietnam Public Joint Stock Commercial Bank (PVcomBank), customers will enjoy a special interest rate of 9.5%/year for a 12-month term when the new deposit balance reaches VND 2,000 billion or higher.

Along with PVcomBank, HDBank JSB also applies a relatively high-interest rate of 8.1%/year for a 13-month term and 7.7% for a 12-month term, with a minimum balance requirement of VND 500 billion. This bank also offers an interest rate of 6% for an 18-month term.

Meanwhile, Dong A Bank is offering a special interest rate of 7.5%/year for deposits of 13 months or longer, with interest payable at maturity for deposits of VND 200 billion or more.

It can be seen that the deposit interest rate trend in September continues the pattern observed in August. Previously, in August, the market recorded 17 banks increasing their deposit interest rates. This wave of increases began in April this year. At that time, the highest interest rate in the system for a 12-month term was around 5%/year, while the current rate stands at 6.2%/year. The number of banks offering interest rates of 5% or higher has also increased, from 12 to 29 institutions.

What’s Behind the Rise in Deposit Interest Rates?

VinaCapital Fund Management Company analyzed that the recent increase in savings interest rates indicates that the period of declining deposit rates in Vietnamese banks, which lasted from March 2023, has come to an end. Higher interest rates will encourage commercial banks to hold VND, limiting interest rate arbitrage (where banks borrow VND at low-interest rates and convert it into USD deposits at higher interest rates).

WiGroup, a company specializing in providing financial, economic, and macroeconomic data, market research, and financial technology solutions in Vietnam, opined that a positive aspect of the increase in deposit interest rates is that the overall level of deposit interest rates for all terms across all groups of commercial banks remains low. This indicates that the liquidity of commercial banks is still abundant.

The trend of increasing deposit interest rates among banks stems from the need to raise capital to boost credit activities towards the end of the year and the issue of bad debts.

Dr. Nguyen Tri Hieu, Finance and Banking Expert

In a discussion with the Audit Newspaper, Dr. Nguyen Tri Hieu, a finance and banking expert, shared that the increase in deposit interest rates by banks can be attributed to two main reasons.

Firstly, according to Dr. Hieu, from now until the end of the year, banks will ramp up lending. Data from the State Bank of Vietnam shows that credit growth has been much slower than expected and is still far from the year-end target of 15%. In the nearly nine months that have passed, credit growth has only reached over 7%.

The 15% credit growth target set by the State Bank of Vietnam at the end of last year was based on the context of a growing economy and stable conditions. However, 2024 has seen numerous global upheavals, including Typhoon Yagi, the Fed’s interest rate cuts, and complex geopolitical situations worldwide.

These unforeseen variables, especially Typhoon Yagi, have impacted the 15% credit growth target. “Therefore, I believe that under profit pressure, banks will intensify lending towards the end of the year, leading to an increased demand for capital mobilization. Banks typically raise deposit interest rates to attract more deposits and boost their lending activities,” Dr. Hieu explained.

The second reason mentioned by Dr. Hieu is the issue of bad debts. Before Typhoon Yagi, the ratio of on-balance sheet and off-balance sheet non-performing loans was over 6%. After the typhoon, many production and business facilities, especially in the agricultural sector in the North, were destroyed, causing businesses to lose their debt repayment ability.

“As a result, I believe that non-performing loans have increased significantly. Bad debts clog the bank’s cash flow. Ideally, banks mobilize capital, lend it out, and after a while, the capital returns to the bank. However, bad debts disrupt this cash flow, and to repay customers when their deposits mature, banks have to mobilize more capital to compensate for the shortage of returning credit funds. Hence, banks have to increase deposit interest rates,” concluded Dr. Hieu.