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Southern banks still favour short-term deposits
Members of the Vietnam Banking Association (VNBA) have not reached any agreement on the suggestion of removing very short-term deposits (less than one month).
While northern banks have agreed to remove less-than-one-month deposits, as their liquidity has improved, southern banks say that the deposits should be maintained in order to diversify capital mobilisation products.
Vo Khac Tin, General Director of Pacific Bank, said: “There is no need to remove short-term deposits if the deposits benefit both depositors and banks."
Tin said that if a client makes a one-week deposit, and then extends the deposit by another and then another week, a bank is able to use the capital for three weeks while it only has to pay a one-week interest rate, which is always much lower a one-month interest rate.
Meanwhile, clients also benefit from short-term deposits as they are able to more closely control their capital.
Of course, short-term deposits make it more difficult for banks to take initiative in using capital. However, a banker said there is no need for banks to worry as they know how to use the capital in the most effective way.
The banker also said that if banks refuse short-term deposits, they will miss out on idle capital.
Duong Thu Huong, Secretary General of VNBA, agreed that banks should maintain the kinds of deposits they find reasonable; however, she has called on them to ‘adjust the interest rate curve’.
“The issue we need to discuss is not whether to remove the one-week-term deposits, but how much the capital should be moblised for,” Huong said.
Huong implied that the interest rate for one-week term and less-than-one-month term deposits should be lower than the rates for medium- and long-term deposits.
Huong stressed that ‘adjusting the interest rate curve’ will bring two good things. First, interest rates will be put in order: longer-term deposits will have higher interest rates than shorter-term deposits. Second, the low interest rates for short-term deposits will encourage clients to make long-term deposits, thus helping banks reduce capital mobilisation costs. If banks can reduce capital mobilisation costs, they will be able to slash lending interest rates.
Huong said that a paradox exists now, namely that it is more profitable to make short-term deposits than long-term deposits. This prompts clients to withdraw money to make very short-term deposits. This could lead to banks being short of long-term capital, which is needed for the national economy.
VNN
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