Depositors keep money in banks despite lower interest rates
Depositors keep money in banks despite lower interest rates
Although banks have lowered the interest offered on kip accounts, many people are continuing to keep their accounts open.
Bankers say there have been no signs that large numbers of people are simultaneously withdrawing their money due to lower interest rates.
A senior official at the Lao Development Bank, who asked not to be named, told Vientiane Times on Wednesday the economy is sluggish so depositors are reluctant to withdraw their money.
Many people seem to be waiting to see what happens with regard to investment prospects in Laos while also taking careful stock of which areas of business they should invest their money in.
But bankers are concerned that in the long run many people will choose to put their money into microfinance institutions, which offer higher interest rates.
According to BCEL, a savings account at the bank now attracts just 1.91 percent interest. A 3-month deposit account attracts 3.20 percent interest, 4.02 percent is paid for a 6-month deposit, 5.72 percent for a 12-month deposit, 6.90 percent for a 36-month deposit, 6.97 percent for a 48-month deposit, and 7.04 percent for a 60-month deposit.
One of the main points to note is that the interest offered on accounts that have been in existence for several years is not significantly different to those offered for an account that has been open for just one year. Previously there was a big difference between the one-year and long-term interest rates.
A Vientiane resident named Ms Khone said she and her friends now prefer to make short-term deposits which will make it easier to withdraw money when they need it, especially as the difference in the interest offered on short- and long-term accounts is not significant.
The lowering of interest rates follows a recent decision taken by the Bank of the Lao PDR in the hope of stimulating economic activity.
The central bank believes the lower interest rate on kip accounts will deter people from depositing money in banks and keep it in circulation, which would also bolster productivity.
In addition, the lower interest rate for deposit accounts is intended to lessen the interest charged on loans. This should serve as an incentive for people to borrow money to finance business activities and in doing so generate job opportunities.
In principle, when commercial banks have large reserves, they lower interest rates to encourage people to withdraw money.
But when banks need more capital, they raise interest rates to attract more depositors.
But in Laos this is not the case. Banks tend to lower interest rates to be consistent with the rates paid in neighbouring countries.
In the past, many foreigners deposited money in banks in Laos because of the attractive interest rates offered here. The current reduction in the interest paid is part of efforts to address this issue.
