Why do banks raise deposit interest rates one after another?

A senior executive of a joint-stock commercial bank pointed out that deposit interest rates may gradually rise in the coming quarters, but the increase from now to the end of the year should not be too large. However, recent moves by many banks to raise deposit rates have aroused concern in the money market. The phenomenon has spread to many banks, not just a few.

In this wave, China Construction Bank (CBBank) raised the interest rate on deposits with a maturity of more than 6 months by up to 0.9%, becoming the bank with the largest increase. On May 6, Saigon Commercial Bank (Sacombank) raised its deposit interest rate by 0.2% to 0.5%, and its 1-2-month online deposit product interest rate increased by 0.4% to 2.7% and 2.9%. Six-month and 12-month deposit rates increased by 0.3% and 0.2% respectively.

In addition, Vietnam BV Bank raised its deposit interest rate for the second time since the end of April, with the interest rate for 1-2 months increasing by 0.1% to 0.2%. Many other banks, such as TP Bank, VIB Bank, Vietnam Industrial and Commercial Bank of China, etc., have also raised deposit interest rates by 0.1% to 0.5%.

In the face of this rise in interest rates, the general manager of a commercial bank said that the bank raised interest rates to predict the rising trend of interest rates in the future and attract more low-interest funds.

Experts analyze that due to the long-term low interest rate environment, personal savings are also showing signs of flowing out of banking channels. The flow of personal savings into the financial system has slowed since the start of the year, while credit balances at some institutions have gradually picked up. Therefore, this may lead to a slight increase in deposit rates in the second half of this year.

Nguyen Sai Minh, an expert at Yuanta Securities Company in Vietnam, said that loan demand is growing. Although the increase is not large, it may cause banks to increase deposit interest rates to supplement liquidity. Many banks increased credit late last year to restructure debt. When demand for new credit rises, banks will have to raise deposit rates to ensure their supply of funds.

Ruan Shiming predicted that banks usually have to maintain profit margins of 1.5% to 2% and loan interest rates between 8% and 10%, so deposit interest rates are capped at 6% to 7%.

Nguyen Anh Kho, director of analysis at Agribank Securities, believes that given the current weak credit demand, most banks will not raise lending rates for the rest of the year. Banks are already having trouble issuing loans and could lose customers if they raise loan rates.

He added that when deposit rates rise while lending rates remain unchanged, banks' profits will be affected, but under the current circumstances, banks have to accept this situation.
 

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