Deposit growth rate slows as credit continues to rise

10:06 | 13/04/2015 Economy

The deposit growth rate is currently slower than that of credit growth; however, savings in banks are still considered a good choice due to low inflation.

Deposit growth rate slows as credit continues to rise

Statistics from the General Statistics Office showed that as of March 20, deposits at credit institutions rose 0.94% from December 2014, while credit increased 1.25%.

Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam's (SBV) HCM City branch, said deposits in HCM City had increased at a modest rate of 0.4%, while credit rose by 2.3%.

Experts attributed the slowdown mainly to a recent significant reduction in deposit interest rates.

According to the SBV, the Vietnamese dong deposit rates have reduced significantly to commonly 0.8%-1% per year for on-demand and below 1 month terms, 4.5%-5.4% per year for 1-6 month terms, 5.4%-6.5% per year for 6-12 month terms; and 6.4%-7.2% per year for 12 month plus terms.

Meanwhile, the residential real estate market is warming up, so many depositors have withdrawn their savings to buy houses.

Nguyen Thanh Nhung, VietBank general director, said that although savings at banks had increased in the first quarter, a number of inpidual customers had withdrawn their deposits and even borrowed money from banks to purchase a house as the lending rate for home mortgages had fallen to reasonable rates.

A representative from a small bank, which declined to be named, admitted that although liquidity in the banking system was good, banks still had to compete to increase their deposit market shares when deposit interest rates were low and were kept at the same rate at both large- and small banks.

Besides interest rates, the representative said, banks also had to utilise more promotions to lure depositors.

Despite the decline in deposit sources, experts agreed that due to low inflation, the current deposit rates still ensure positive effective rates, so savings are still a good choice for investment.

Tran Du Lich, member of the Monetary and Financial Policies Advisory Council, said the rate cap of 5.5% per year for term deposits of under six months still ensure positive effective rates. Depositors could even get higher rates if they chose longer terms, he said.

However, Lich said, the flow of savings to other channels was also a good sign as it proved the potential for an economic rebound.

Source VOV News