Slow deposit growth
Deposit plays a very important role in operation of banks and is the base for banks to offer lending, settlements, and other banking services. The banks which have higher deposit will have more advantage in expanding their scope of operations, improving their competitiveness and building a sound reputation in the market. Hence, deposit raising competition is always the main target of most banks. In 2016, 2017 and 2018, the deposit of banks grew very high.
In Q1/2019, the M2 growth was slower with 2.54% YoY growth vs 3.23% of Q1/2018. The deposit grew 1.72% YoY, lower than 2.43% growth of Q1/2017 and 2.2% growth of Q1/2018.
At the end of second quarter, total deposit at 25 commercial banks reached VND 5.59mn billion, an increase of 7.17% YTD, lower than 7.78% of 6M/2018.
The three state owned banks constitute 50% of total deposit of banking system with VND 2.78mn billion, in which deposits of BIDV, VCB and CTG reached VND 1,060,000bn (+7.09% YoY), VND 870,000bn (+8.6% YoY) and VND 847,000bn (+2.55% YoY), respectively. Note that, in 6M/2018, the deposit growth of these three banks was 8.4% YoY, 12.16% YoY and 13.2% YoY, respectively.
Among the commercial bank groups, some banks which posted high deposit growth include VPBank (+15.52% YoY to VND 197,000bn), BIB (+16.84% YoY to 99,158bn), Sacombank (+11.12% YoY), Techcombank (+9.36% YoY) and SCB (+8.94% YoY).
The other smaller banks posted a slower deposit growth. Viet Capital Bank deposit grew only 2.34% YoY to VND 34,000bn, although this bank offered the highest deposit rate in the system. Kienlongbank deposit rose 5.32% YoY to VND 30,759bn.
Some banks which posted a negative growth in their deposits were PGBank (7.82% YoY), and Saigonbank (-0.61% YoY).
Deposit raising pressure
The slow growth of deposit in the first six months is unexpected as there has been no investment channel which can compete with banking deposit during this period given the 2% increase in 6-month term deposit interest rate.
Among the state owned banks, BIDV has raised its deposit rate from 6.8% to 7% for the 12-month term which is equal to the interest rate of 36-month deposit in Vietinbank.
The demand to raise huge deposit has pushed the deposit rate to even 8.8%. NCB offered 8.8% for the deposit on amount of above VND 500mn and term of 24 months. TPBank, VIB and Viet Capital Bank also pay 8.6% to depositors who deposit around VND 100-500bn.
The other banks that also offer high deposit interest rate include PVcomBank (8.5% for deposit of VND 500bn for 13 months), VPBank (8.4% for deposit of above VND 5bn), Eximbank (8.4% for deposit of 24-36 months), Vietinbank (8.3% for deposit of 36 months), ABBank (8.3% for deposit of above VND 500bn for 13 months), CBB Bank (8.2%), VietABank (8.1% for deposit of 13-15 months), LienVietPostBank (8% for deposit of VND 300bn of 13 months), Kienlongbank (8% for deposit of 15-24 months), Sacombank (8% for deposit of VND 100bn for 13 months).
The pressure to raise deposit of banks till the end of 2019 is expected to continue increasing. Currently the required ratio of short term deposits to long term loans are set at 40%, but the State Bank intends to cut it to 30% in next 2-3 years. Hence, competing to attract deposits to meet this requirement will continue for banks.
The more banks do the competition; the higher interest rate they offer. However, there has been the case where many clients have withdrawn their money at this bank to put into the other bank to get higher interest rate. Furthermore, gold price has moved up strongly recently which may cause clients to move to this investment channel, in spite of bank deposit offer.
The room to increase NIM (Net Interest Margin) of banks is smaller now, given the deposit raising pressure and the fierce competition in retail banking segment. Furthermore, banks find it hard to improve NIM as the LDR (Loan to Deposit Ratio) is very close to its limit, the consumer finance segment faces difficulty of tough competition, and the State Bank limits the credit growth of banks.
The above situations, combined with the slow growth of deposit in the 6M/2019 are the reasons for banks to keep high deposit interest rate. Moreover, people now have gotten used to depositing for long term to get higher interest rate, hence, if banks adjust the interest rate, it will be hard to raise capital from people.
Based on above analysis, the lending interest rate for mid and long term is also expected to be kept at high level, especially lending interest rate of home loans and car loans.
