Interest rates continue to decrease, how does the flow of money deposited into banks fluctuate?

Bank deposit interest rates have been continuously decreasing since the end of the first quarter of 2023. Currently, the highest interest rate applied to common long-term terms is only 7 - 7.5%/year, instead of about 10%/year as at the beginning of the year. However, customer deposit balances at most banks still recorded positive growth after the first half of the year.

Customers make transactions at Vietcombank Vinh Phuc branch. Illustrative photo: Tran Viet/VNA

Can this growth rate be maintained in the coming time or will cash flow shift to investment channels that are showing signs of warming up amid the continuing downward trend of bank interest rates?

Cash flow to the bank

The summary of financial reports for the second quarter of 2023 shows that many banks have seen strong double-digit growth in customer deposits. Notably, Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank) has increased by nearly 43.5% compared to the beginning of the year, bringing the deposit balance to more than VND 309,600 billion. This is also the highest deposit growth rate in the industry in the past 6 months. Meanwhile, HDBank's credit growth as of June 30, 2023 was just over 9%.

Explaining these figures, Mr. Pham Quoc Thanh, General Director of HDBank, said that the growth in mobilization, especially mobilization from market 1 (mobilization from individuals and organizations) is part of HDBank's strategy to increase capital and total assets, especially in the strategy to comply with international standards on Basel III and balance the loan-to-deposit ratio (LDR).

"HDBank has taken advantage of the market opportunity when interest rates have dropped sharply to grow strongly with reasonable interest rates. The rationality is reflected in the profit margin (NIM) being maintained at 5% and still ensuring efficiency in business operations," said Mr. Thanh.

In particular, the General Director emphasized that capital mobilization and cost reduction are also to prepare for credit growth, especially in the more vibrant business cycle in the last 6 months of the year. Because capital mobilization in the fourth quarter of each year often comes with high costs, HDBank has a different strategy to prepare for capital at the end of the year.

Some banks also had high growth compared to the beginning of the year such as Vietnam Prosperity Joint Stock Commercial Bank (VPBank) with 27.86%; Viet A Commercial Joint Stock Bank (VietABank) nearly 20%; Kien Long Commercial Joint Stock Bank (Kienlongbank) more than 17%; Nam A Commercial Joint Stock Bank (Nam A Bank) increased by 16.3%; Saigon - Hanoi Commercial Joint Stock Bank (SHB) increased by 13.26%...

Only two banks recorded a decrease in deposits, namely National Commercial Joint Stock Bank (NCB) and Petrolimex Commercial Joint Stock Bank (PG Bank), with decreases of 1.4% and 0.1% respectively compared to the beginning of the year.

Meanwhile, in terms of absolute balance, the "big 4" group of 4 large state-owned commercial banks still ranked first in customer deposits after the first 2 quarters of the year, far surpassing the remaining banks, although the mobilization interest rate of this group is always the lowest in the system.

Specifically, the Vietnam Bank for Agriculture and Rural Development (Agribank) recorded a deposit balance of nearly VND1.7 million billion at the end of the second quarter of 2023, up 3.8% compared to the beginning of the year. Next is the Vietnam Joint Stock Commercial Bank for Investment and Development (BIDV) with more than VND1.5 million billion in deposits, up nearly 4.9%.

Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Joint Stock Commercial Bank for Industry and Trade of Vietnam (VietinBank) recorded deposit balances of over VND1.3 quadrillion, up 6.71% and 4.87% respectively compared to the beginning of the year.

The next positions are Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) with a deposit balance of more than VND500,000 billion, up 10.3%; Military Commercial Joint Stock Bank (MB) with more than VND475,000 billion, up nearly 7.2%; Asia Commercial Joint Stock Bank (ACB) with VND432,000 billion, up 4.2%; Saigon - Hanoi Commercial Joint Stock Bank (SHB) with VND409,000 billion, up 13.26%...

According to statistics from the State Bank, more than VND 482,000 billion in deposits from residents entered the banking system in the first 5 months of the year, bringing the balance of residents' deposits to nearly VND 6.35 million billion, an increase of 8.21% compared to the end of 2022.

The above figures partly reflect the trend of people's choices in the first months of the year, still prioritizing saving in banks. Because, despite the decrease in interest rates, this is still considered the safest investment channel in the context of the real estate market, stock market stagnation, corporate bonds facing many violations...

On the other hand, the cash flow to the bank is also aimed at preserving capital, waiting for business opportunities when production and investment activities of enterprises in the recent period have faced many difficulties, making it difficult to expand in scale.

The shift is coming

Although the amount of money deposited in banks is still increasing, the growth rate has tended to slow down in recent months. Specifically, if in January 2023, resident deposits recorded an increase of more than VND 177,000 billion compared to the previous month, by April 2023, the increase was only VND 52,028 billion compared to March. This trend of narrowing the growth rate is forecast to continue, especially after 4 consecutive times the State Bank reduced many types of operating interest rates, causing the mobilization interest rate level to decrease.

Compared to the first months of the year, interest rates at banks have dropped sharply, averaging a decrease of about 1 - 1.6 percentage points. The highest interest rate applied to long-term terms is commonly only 7 - 7.5%/year; even at the "big 4", the highest interest rate is only 6.3%/year.

Most recently, some banks continued to reduce deposit interest rates by 0.3 - 0.5%/year for many terms such as at SHB, VietABank, HDBank, ACB...

In particular, SHB applies online mobilization interest rates of only 6.7%/year for terms of 6 - 8 months; 6.8%/year for terms of 9 - 11 months and 6.9%/year for terms of 12 months or more. At VietABank, deposit interest rates for terms of 6 - 11 months are 7%/year; terms of 12 - 18 months are 7.3%/year...

At HDBank, the highest interest rate applied in August is only 9.1%/year instead of 9.3%/year as before for customers depositing from 300 billion VND or more for a term of 13 months; under 300 billion VND, the interest rate is 7.35%/year. With a term of 12 months, HDBank also applies an interest rate of 8.6%/year for deposits from 300 billion VND or more and 7%/year if the deposit amount is under 300 billion VND...

HDBank's General Director said that from now until the end of the year, the bank plans to reduce its average cost of capital to below 6%.

Economist - Dr. Nguyen Tri Hieu assessed: the State Bank's reduction of operating interest rates is creating a trend of interest rate reduction in the market in the coming time, helping credit institutions have more conditions and be more drastic in reducing lending interest rates, supporting people, businesses and the whole economy.

Normally, a sharp drop in savings interest rates will make this investment channel less attractive, causing cash flow to shift to investment channels such as stocks, real estate, bonds, etc.

According to the forecast of VNDirect Securities Corporation, by the end of 2023, the average 12-month deposit interest rate may be at 6-6.2%/year and will drop even lower in 2024. From there, VNDirect believes that the trend of shifting investors' cash flow will become clearer in the last months of this year to find other investment channels with higher returns.

But according to Dr. Can Van Luc, Chief Economist of BIDV, the recovery of the real estate market is still slow, many difficulties have not been resolved, demand for home loans has decreased...; the earliest it will be until early 2024 for the real estate market to recover.

On the other hand, promoting digital transformation, applying information technology to improve customer experience and satisfaction, along with many gift programs, adding interest when depositing money online... is expected to help banks retain depositors.

For example, at HDBank, all customers who deposit savings of 10 million VND or more at the counter or on the banking application/Internet Banking with a minimum term of 1 month have the opportunity to receive gifts from the promotion program "Deposit money immediately - Receive great gifts immediately". In particular, the most attractive prize of the program is 10 savings books with a total value of 850 million VND and nearly 9,000 high-end household gifts.

Or at the Vietnam Joint Stock Commercial Bank (BVBank), customers who deposit savings from now until October 31 will accumulate points to redeem gifts and have a chance to win a trip to Korea worth 30 million VND...

An Binh Commercial Joint Stock Bank (ABBank) has launched a program to offer an additional interest rate of up to 1% when making online savings deposits on the AB Ditizen application...

Economist Nguyen Duc Do commented: the general trend in the coming time is that interest rates will decrease, there may be another round of reduction in operating interest rates from the State Bank. However, the process from reducing operating interest rates to reducing deposit and lending interest rates will have a certain delay.

Source