Upward trend in bank interest rates

The Bank of Investment Development of Việt Nam (BIDV) reduced the interest rate on non-term deposits from 0.3 per cent to 0.2 per cent, and on 36-month deposits, from 7 per cent to 6.8 per cent.

The Agriculture and Rural Development Bank cut its non-term deposit interest rate from 0.5 per cent to 0.3 per cent.

The Sài Gòn Thương Tín Joint Stock Commercial Bank (Sacombank) reduced the interest on short-term deposits by 0.1 percentagage point.

But analysts believe not all banks will buy into this trend, with some thinking that the interest rates might even go up later this month and in the early part of the new year.

They said the interest rates are beginning to come under relentless pressure since the dollar has started to appreciate strongly after the US Federal Reserve (FED) recently increased interest rates and indicated more rate hikes are to come.

This is likely to encourage people to shift from the đồng to the dollar, which will threaten banks’đồng liquidity.

Thus, many banks have plans to increase deposit interest rates to improve their liquidity since lending activities usually surge now, the year’s peak business season.

The liquidity is also affected by other factors.

By November, the banking sector’s credit growth rate reached 15.8 per cent.

This means that to realise the year’s credit growth target of between 18 and 20 per cent, banks would have to accelerate mobilisation of deposits to ensure they have enough liquidity to fund their lending.

The analysts said bad debts have also had an impact on interest rates.

According to the State Bank of Việt Nam, since 2013 the Việt Nam Asset Management Company (VAMC) bought bad debts totally worth VNĐ262.054 trillion (about US$11.65 billion) from banks, but has recovered only VNĐ37.938 trillion ($1.67 billion), or just 15 per cent.

This has a lingering impact on the financial ability of many credit institutions.

Besides, new bad debts continue to plague some of the banks.

BIDV, for instance, in the first nine months of this year reported bad debts of VNĐ13.217 trillion ($587.42 million), or 1.96 per cent of its outstanding loans.

Notably, irrecoverable debts increased to VNĐ7 trillion, making up 46 per cent of the bad debts.

Though by September Vietcombank’s bad debts ratio fell to 1.73 per cent from the 1.84 per cent early in the year, its doubtful debts were up by VNĐ1trillion.

A doubtful debt is an account receivable that might become a bad debt at some point in the future.

Recently interest rates on the interbank market have been rising, especially in the first half of December. This has also had an effect on banks’ deposit and lending interest rates.

Between December 5 and 12 alone the interbank rates increased by 70-80 percentage points. The overnight interest rate increased to 4.75 per cent per year and the one week rate was up to 4.8 per cent.

Since then the overnight rate has nearly reached 5 per cent.

Explaining the reasons why the interbank rates have been increasing, experts said money supply in the market has decreased because credit growth has been higher than deposit growth, 15.8 per cent compared to 15.2 per cent.

Besides, the increase in banks’bad debts and the strengthening of the greenback against the đồng are also factors creating pressure on the rates.

As the interbank interest rates increase, understandably there is upward pressure on deposit interest rates.

Yet another factor is inflation, which is showing signs of hardening, maybe reaching 5 per cent by year-end. Banks have to increase the nominal deposit interest rates to keep real rates reasonable.

Many joint stock banks to list soon

OCB shareholders decided at a recent meeting that there will be a change of listing plans. The bank’s shares will now be listed on the Hồ Chí Minh Stock Exchange and not on the Unlisted Public Company Market, or UPCoM, as decided earlier.

In the second quarter, the lender’s annual shareholders meeting had approved a plan to list on UPCoM.

The recent meeting also tasked OCB’s executive board with completing the required paperwork and choosing a suitable time to list on HOSE.

The change is expected to improve the liquidity of its shares.

Besides OCB, many other joint stock banks have also opted to list their shares on HOSE or on the Hà Nội Stock Exchange (HNX) instead of trading on UPCoM.

The director of a joint stock bank based in HCM City revealed that after approving a plan to sell 50 per cent stakes to foreign investors, his bank would begin the process of listing on HOSE.

On December 12 more than 564 million shares of Việt Nam International Joint Stock Commercial Bank (VIB) were registered with the Việt Nam Securities Depository, the first step for the bank to on the stock market.

VIB is a bank that takes good care of its shareholders. In 2014 it paid 9 per cent in cash and 14 per cent in the form of bonus shares.

In 2015 they were respectively 8.5 per cent and 16.5 per cent.

Techcombank has already sought shareholder approval for registering with the VSD and listing on HOSE/HNX.

The executive boards of VPBank and VietA Bank have also said they are waiting for guidelines from the State Securities Commission to complete the required procedures to list their shares on the stock market.

Why are banks keen to list at this time?

The State Securities Commission (SSC) issued Circular 180/2015/TT-BTC on unlisted public companies, which took effect on January 1, 2016.

According to new rules it laid out, public companies which are not eligible for listing on the two stock exchanges and equitised enterprises must register for trading on UPCoM within 30 days from their registration as a public company.

Within 30 days of the last day of an initial public offering, unlisted public companies and equitised enterprises must register for trading on UPCoM.

The new rules were aimed at preventing eligible companies from avoiding listing and deliberately delisting, actions that could harm investors’ interests.

The authorities expect listing to improve the transparency and operational efficiency of companies.

Meanwhile, according to data released by the SSC on November 30, 2015, more than 1,000 public companies had listed neither on the stock exchange nor on UPCoM.

The new circular stipulates a deadline of December 31, 2016, for listing by companies that have not yet listed.

Because of this, many public companies, including joint stock banks, have been hastily completing the required procedures to list their shares to before the deadline.

By June this year shares of 686 companies had been traded on the two national stock exchanges, while the number on UPCoM stands at over 280.