"Cure" excess money, Big 4 banks finally lower interest rates

The last bank in the Big 4 group has recently announced a reduction in operating interest rates. Accordingly, Vietnam Joint Stock Commercial Bank for Industry and Trade ( VietinBank – HoSE: CTG) announced a new deposit interest rate schedule with a reduction of 0.2 – 0.3 percentage points for terms of 3 months or more.

Specifically, interest rates for non-term deposits and terms under 1 month are kept at 0.1% and 0.2%; terms from 1 month to under 3 months still enjoy an interest rate of 3%/year.

Meanwhile, interest rates for terms from 3 months to less than 6 months decreased by 0.2 percentage points, from 3.8% to 3.5%/year; terms from 6 months to less than 12 months decreased from 4.7% to 4.5%/year.

The highest interest rate for terms of 12 months or more is 5.5%/year, down 0.3 percentage points compared to before. This is Vietinbank's historically low interest rate for long terms, equivalent to other banks in the Big 4 group.

Vietcombank and Agribank previously reduced their deposit interest rates by 0.2-0.3 percentage points, bringing the highest interest rate down to 5.5%/year. On September 18, BIDV also made a similar move by reducing 0.2-0.3 percentage points across a range of terms.

Thus, the entire group of 4 state-owned banks, VietinBank, Vietcombank, BIDV and Agribank, have all reduced their highest deposit interest rates to 5.5%/year - equal to the historical low recorded during the Covid-19 period.

The sharp reduction in deposit interest rates by major banks comes as the entire banking system is facing a situation of excess money.

Deputy Governor of the State Bank Dao Minh Tu once shared: Never before has monetary policy management been as difficult as it is now.

Mr. Tu likened that the entire banking system is currently having to “treat” the disease of excess money. Just like businesses have inventory of goods, commercial banks also have inventory of money.

According to a report by the State Bank of Vietnam, as of August 29, 2023, economic credit reached about VND 12.56 million billion, an increase of 5.33% compared to the end of 2022 (in the same period in 2022, it increased by 9.87%).

In the past 3 years, the total credit of the whole system has increased by an average of about 1 million billion VND/year. In fact, the credit turnover of the banking system to the economy in the year is many times larger. Specifically, in 2021 it was 17.4 million billion VND; in 2022 it was 19.7 million billion VND; in the first 6 months of 2023 it was nearly 10.2 million billion VND.

According to the State Bank, in the recent past, in the context of other capital mobilization channels not really being effective, especially the capital market having some problems, causing capital demand for economic recovery to be concentrated mainly through bank credit channels, Vietnam's credit/GDP ratio has tended to increase rapidly, especially since 2020, although there are signs of slowing down in 2022, it is still on an upward trend, posing potential risks to the system of credit institutions.

In the context of excess liquidity in the credit institution system and a lot of room for credit growth (the whole system has about 9% left for credit growth, equivalent to about 1 million billion VND), lending interest rates tend to decrease, thereby creating favorable conditions for credit institutions to provide credit capital to the economy .

Source