Deposit interest rates go down, where the money goes to then?

VietNamNet Bridge – Since commercial banks have lowered the interest rates, depositing has become less attractive in the eyes of investors. They may withdraw money from banks to put into production and business projects, or invest in securities as the stock index is on the rise.

Vietnam, interest rates, real estate, gold price, exchange rate

Vietinbank and Agribank have proceeded along Vietcombank to cut down the dong deposit interest rates. Vietcombank now offers the interest rate of 6 percent per annum only for one month deposit, or 1.5 percent lower than the ceiling interest rate stipulated by the State Bank.

In fact, the interest rate reduction is foreseeable in the context of the lower inflation and the stagnate production.

Comparing the banks’ mobilized capital with the piece of burning coal, Dr. Tran Hoang Ngan, a member of the national advisory council for finance policies, said if banks don’t cut down the interest rates, they would have hands scalded, stressing that lowering the deposit interest rates is a reasonable move.

Nguyen Phuoc Thanh, General Director of Vietcombank, said Vietcombank’s mobilized capital has been increasing steadily; the bank’s liquidity has been stable, while the lending has been growing very slowly. Therefore, the banker has decided to reduce the capital cost in an effort to reduce the lending interest rates, thus making more businesses approachable to bank loans.

The Vietcombank’s move has been followed by the Bank for Investment and Development of Vietnam BIDV, which has announced that the one-month term deposit interest rate is 6 percent per annum from May 8 and 8 percent for long term (more than 12 months) deposits.

Vietinbank has also made a similar move, slashing the one-month term deposit interest rate to 7 percent. Meanwhile, Agribank only pays 5 percent for this kind of deposit.

Bankers said that the lower interest rates remain attractive enough to persuade people to deposit money at banks. However, analysts believe that depositors would rethink how to use their idle money, as the interest rate has become too low at 6-7 percent.

The interest rates have been decreasing too sharply, while the consumer price index (CPI) increase in 2013, as decided by the National Assembly, would be some 8 percent. This means that depositors would not be able to enjoy the real positive interest rates when depositing money at banks.

Where will the money go to, then? Phan Dung Khanh, Head of the Analysis Division of Maybank Kim Eng Securities Company, believes that money would be poured into stocks instead of bank deposits.

“The gold price has decreased, but it is still very expensive. The dong/dollar exchange rate has been stabilized over the last 2 years, and one should not expect to make profit from the dollar price fluctuations. The real estate market remains frozen,” Khanh said, explaining why stocks could be the new destination of the cash flow.

The VN Index has been increasing impressively since the beginning of the year, according to analysts, which shows the recovery of the stock market. Especially, the advantage of the securities investment over the real estate investment is that the former can bring profits within a short time, while the latter cannot.

“The government’s strong determination to boost the economic development would give one more reason to the stock market to recover and develop in the long run,” Khanh said.

Meanwhile, Ngan said a lot of people may withdraw deposits from banks when the interest rates become no more attractive, to put into their production and business.

Compiled by Thu Uyen

Vietnam, interest rates, real estate, gold price, exchange rate