Banks up rates on certificates of deposit to more than 9%

Banks have surged their interest rates on certificates of deposit (CDs) sharply, bringing them in excess of 9 per cent per year with the aim of mobilising long-term capital.

 

VietABank recently announced it was issuing long-term CDs with record high interest rates. Specifically, an interest rate of 9.1 per cent is applied for a 24-month CD valued at a minimum of VND10 million (US$430) for individual customers.

Many other banks, such as Sacombank, BIDV, SHB, MSB and SeABank, have also issued CDs with high interest rates to lure depositors.

At Sacombank, for example, when customers apply for a seven-year CD valued at a minimum of VND1 million, they can enjoy an interest rate of 8.6 per cent per year.

State-owned BIDV has also introduced high interest rates for long-term CDs. An interest rate of 7.6 per cent is applied for an 18-month CD valued at a minimum of VNĐ10 million for individual customers and VND50 million for corporate customers.

According to a bank leader, who declined to be named, banks are often willing to mobilise capital via the issuance of CDs with high interest rates when they need capital to fund projects or lend customers at high lending rates of some 10-12 per cent per year. The rate is currently some 1 per cent higher than normal deposits.

Industry insiders also believed banks had to issue CDs at high interest rates as they faced difficulties luring long-term capital.

Many banks are in dire need of long-term capital as their ratio of medium- and long-term capital out of their total capital remains limited. According to State Bank of Việt Nam (SBV) regulations, banks must reduce their short-term funds for medium- and long-term loans to 40 per cent from this year against last year’s rate of 45 per cent.

Banks also need more capital to meet a capital adequacy ratio (CAR) of 9 per cent in 2020 as per the SBV’s Basel II norms. Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost $20 billion to meet the standards.

According to experts, in the current context, the most effective and rapid measure to help banks meet the central bank’s regulations is to increase long-term deposits by raising interest rates to attract depositors.

However, the experts are also concerned that the rate hikes would cause a domino effect on interest rates of long-term loans.

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