Vietnam - Interest rates down, but cash keeps flowing to banks

VietNamNet Bridge – The deposit interest rate has dropped sharply to 9 percent per annum, which means the lower earnings for depositors. However, banks do not fear that the capital to be mobilized would decrease, because those who have idle money, would not have better choices than depositing their money at banks.

Nguyen Dinh Hoan in the Dinh Cong new residential quarter in Hanoi feels sad when the deposit interest rates have been decreasing continuously. He and his wife, a retired couple, have been relying on the income from leasing an old flat in Trung Tu area and the interests from the 2 billion dong worth of deposit.

In 2011, when the deposit interest rate climbed to 20 percent per annum, he earned 33 million dong a month, which was enough for meals and savings. However, as the interest rates have been dropping so sharply, his income has also been decreasing accordingly.

At present, Hoan gets 18 million dong a month if he deposits money at small banks, which, in order to compete with other banks to attract deposits, accept to pay him the interest rate of 11 percent, or 2 percent higher than the ceiling rate.

Seeing the income dropping sharply, but Hoan has no other choice than depositing money at banks. It is because all the investment channels at this moment prove to be unprofitable and risky. The stock market remains unstable, while the real estate market stays gloomy.

“I intended to withdraw money from banks to buy gold, if the gold price decreases to 40-41 million dong per tael. However, the gold price then rose again and it has been fluctuating all the time,” he complained.

After the State Bank announced the ceiling deposit interest rate reduction, a lot of people think of injecting money in other investment channels, since deposits cannot bring them the desired interests. However, they still have not found any optimal solution.

Minh Phuong, who works for a design company in Hanoi, said that she has 800 million dong in saving book. When the interest rate went down to 9 percent, she planned to buy 20 taels of gold to store. However, she is still hesitant with the plan.

“The gold price is hovering around 42 million dong per tael, which is 2 million dong per tael more expensive than the world’s price. Meanwhile, I have heard that once the new policy on gold market management takes effect, the gold price would decrease. Therefore, I still wonder what to do with my money,” she said.

In fact, buying dollars is also a favorite way for many Vietnamese people. However, Phuong dare not buy dollars at this moment, because she cannot see any signs of dollar price increase. The dollar price on the black market is even lower than that quoted by commercial banks.

“I have decided to deposit money at banks, for the time being I will think about what I need to do,” Phuong said.

Thanh Minh, who lives in Hoan Kiem district in Hanoi, said that she now has one billion dong after she sold an apartment at Viet Hung residential quarter. The money has been put in the coffer, because she has not decided what to do with the money.

“Depositing money proves to be the best solution for now. Real estate, gold and dollar are not the good choices,” she said.

A senior executive of VP Bank said that the bank late last week witnessed a lot of people making long term deposit at the bank, saying that people do that because they foresee the downward trend in interest rates.

Meanwhile, an executive of Techcombank, said the bank has recognized the sharp fall of the dollar deposits from individual clients. This can show that dollars have become no more attractive, and that the trend would not change even when the interest rates go down.

Ngoc Dong

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