Idle money flows into banks despite sharp drop in interest rates

SGGPO 11/27/2023 16:53

According to the latest data just announced by the State Bank of Vietnam (SBV), by the end of August 2023, the deposit balance in the banking system reached more than 6.43 million billion VND, an increase of nearly 9% compared to the end of 2022, equivalent to an absolute increase of 567,600 billion VND.

Deposits still flow strongly into banks despite sharp interest rate cuts

In September 2023 alone, people deposited more than VND 15,900 billion into the banking system, of which banks attracted VND 6.45 million billion. The increase in personal deposits in September 2023 was only lower than before the pandemic and higher than the same period three years ago. Compared to the beginning of 2023, personal deposits increased by 9.95%, the highest increase since 2018.

Not only attracting idle money from residents, the amount of money deposited into banks by economic organizations has also increased sharply. Specifically, in September 2023, economic organizations deposited 217,000 billion VND in banks, up to 6.23 million billion VND in 9 months, an increase of 4.65% compared to the beginning of the year. Thus, the amount of money deposited into banks by organizations in September 2023 was even higher than that of residents.

In general, deposits from residents and organizations flowing into the banking system by the end of the third quarter of 2023 reached VND 12.68 million billion, an increase of nearly 7.3% over the beginning of the year.

Commenting on the fact that idle money is still flowing into savings channels despite the sharp decrease in deposit interest rates in recent times, experts said that the deposit channel is always favored by people because of its safety even though the rate of return is not equal to other investment channels. Especially in the current context, when the real estate market is stagnant, the gold and stock markets are fluctuating strongly, causing many risks, causing investors to continue to "take refuge" in savings channels.

Explaining the recent surge in deposits by organizations into banks, the leader of a commercial bank in Ho Chi Minh City said that normally, at the end of the year, money flows out of banks because businesses and people withdraw money to prepare for production and business for the peak season, as well as for shopping and spending. However, in the context of a weak economic absorption, not only is excess credit in banks not yet released to the market, but also a large amount of idle money is received, including the economic organization sector.

“Faced with the uncertain outlook of the upcoming economy, the business environment is still quite risky, so most businesses are narrowing down their operations and being defensive, so not only do they not borrow from banks, but with idle capital, businesses also tend to deposit it in banks to earn interest, waiting for new opportunities to expand production and business,” he said.

With the highest VND deposit interest rate in October 2022 at over 10%/year, the current VND deposit interest rate under 6 months at most banks has decreased to below 5%/year, commonly at 2.6% - 4.7%/year. The interest rate for a term of 12 months is only around 5 - 6%/year. Thus, compared to the same period in 2022, the VND savings interest rate has now decreased by 3 - 5%/year.

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