Cautious state remains after gold auction

Pham Xuan Hoe, former deputy director Banking Strategy Institute

The deposit interest rates in banks have reached their lowest level in years, which is beneficial for the economy if corresponding lending rates decrease. The total deposits in the system as of December 31, 2023 amounted to $562.5 billion, an increase of approximately 13 per cent. The deposit structure between institutions and individuals is equal.

The way in which individuals describe the increase in deposits as ‘staggering’ at nearly $583.33 billion overlooks the fact that such growth is within the normal range, given the prevailing levels of inflation and GDP. With the deposit interest rates reaching 9-10 per cent in 2023, it is natural for deposits to increase.

However, the deposit interest rate landscape has been continuously decreasing and is at record lows, with rates for 1-month terms around 1.7-2 per cent, and 12-month terms around 4.6-5 per cent or higher. By the end of March, the total deposits amounted to $558.33 billion, a dip of 0.76 per cent compared to the beginning of this year. Of this, the decrease in economic deposits by 0.76 per cent is attributed to a shift towards other investment channels.

Gold prices increased by 23 per cent in Q1, resulting in a 23 per cent profit for gold holders since the beginning of the year. On average, Vietnam consumes 55 tons of gold annually according to Fulbright’s calculations, with domestic supply ranging from 3-4 tons, leading to imports of over 50 tons of gold.

The necessity of using a large amount of foreign currency to import gold also puts pressure on the exchange rate. There is a significant inflow of funds into gold due to its high prices, with domestic gold companies experiencing high sales volumes, such as PNJ with sales exceeding $1.25 billion and profits exceeding $41.67 billion; SJC with revenues exceeding $1.25 billion.

According to Fiingroup’s analysis, the proportion of funds flowing into the real estate sector has increased to 21.5 per cent, surpassing banks at 17.8 per cent and securities at 15.5 per cent. Particularly, there has been a significant increase in funds flowing into securities, with domestic funds offsetting the entire amount of net selling by foreign investors. The number of newly opened accounts has increased, with an average trading volume of $1.125 billion per session.

Additionally, there is a considerable recovery in the real estate market with several positive factors such as remittances of $14 billion annually; the Land Law allowing overseas Vietnamese to purchase and hold real estate; many enterprises repurchasing bonds with a total amount of $436.17 million; and foreign investment increasing in real estate.

With the trend of gradually increasing deposit interest rates from now until the end of the year, deposit inflows into banks are expected to recover. Money in Vietnam is still not cheap. The real interest rate for borrowing, subtracting inflation, is still high at 4-5 per cent. Only good businesses can borrow at low short-term interest rates of 5-6 per cent, while typically short-term loans carry interest rates of 7-8.5 per cent and medium to long-term loans carry interest rates of 9-10 per cent. The interest rates are still too high, and money is not cheap.