In late 2018 and early 2019, some commercial banks implemented the issuances of certificate deposits with higher interest rates than normal savings rates, popular at eight percent per annum. This is an active step for a trend which is clearly seen in the system.
In the market of certificate of deposits, the high interest rate continued to reach 8.9 percent per annum, recorded at Saigon Hanoi Commercial Joint Stock Bank (SHB). That was the first deposit certificate issuance of the bank in 2019
For individual customers, the par value of SHB’s deposit certificates is from one million dong. The interest rates of deposit certificates with par value of less than two billion dong are respectively 8.6 percent, 8.7 percent and 8.8 percent per annum on terms of respectively 18 months, 24 months and 36 months. For certificates of deposits from two billion dong and more, the interest rates for the above terms are respectively 8.7 percent, 8.8 percent and 8.9 percent per annum.
For corporate customers, SHB is also applying a programme to issue certificates of deposits at high interest rates of up to 8.2 percent per annum, applicable for deposits from 500 million dong, with flexible terms from six to 36 months.
Nguyen Van Le, general director of SHB said that this first issuance of deposit certificates of SHB aims to supplement medium and long-term capital for the bank, and also to offer additional benefits for depositors.
That is the benefit and motivation from both sides, and certificates of deposits are becoming an increasingly familiar product and tool in the Vietnamese market.
With specific characteristics, deposit certificates are mainly used to mobilise medium and long-term capital. This feature helps commercial banks increase sustainable mobilisation structure and take more initiative in balancing and using capital.
The initiative is also seen in flexibility. During operation, commercial banks use certificates of deposits to quickly increase a capital component with a defined level. The competition in interest rates increases in attracting sources, while on the other hand, banks are able to self-control mobilisation costs.
For example, the issuance time for SHB’s first deposit certificate issuance of SHB in 2019 is until June 6th 2019, but can be sooner if the bank mobilises a total face value of 10 trillion dong, under the previously- calculated demand.
The demand to supplement medium and long-term capital is emerging in the system of commercial banks. It is associated with two main factors, including the decisive trends in operational strategies. In addition to mobilising normal deposits, certificates of deposits, with the above characteristics, have become a support tool.
Firstly, the demand for medium and long-term capital increases because from early 2019, commercial banks must lower the use of short-term funds for medium and long-term lending from 45 percent to 40 percent. Meanwhile, since the demand for medium and long-term loans of the economy is still high, raising the proportion of medium and long-term mobilisation fund is also a direction.
Secondly, in recent years, at present and in the future, the trend of developing retail banking with retail credit and consumer credit has been confirmed. In retail credit, the demand for medium and long-term capital accounts for a large proportion.
Specifically, the retail credit and consumer credit have significantly risen in Vietnam in recent years, associated with the golden population structure of about 95 million people. The demand for home loans, automobile loans has increased year by year, and is often associated with medium and long-term loans.
Statistics of the State Bank of Vietnam (SBV) showed that by the end of 2018, the outstanding loans to serve people’s lives of the system reached up to 1,416.933 trillion dong, accounting for 19.65 percent of the total outstanding loans of the economy with a growth rate reaching up to 29.38 percent compared to the end of 2017. In particular, the long-term outstanding loans accounted for up to 78 percent.
In response to such great demand, certificates of deposits have become a flexible tool for banks to actively balance sources. On the other hand, it creates additional benefits and options for depositors.
For SHB’s deposit certificates, in addition to the high interest rate of 8.9 percent per annum, deposit certificates are also flexible assets for customers. When they have unscheduled needs to use capital, they can pledge the deposit certificates to borrow capital. Notably, SBV applies preferential mortgage interest rates which are equal to the interest rates of the deposit certificates.
In addition, customers can use the deposit certificates as collateral for borrowing at SHB and other credit institutions, or transfer ownership in various forms such as trading, exchanging, inheriting, transferring, etc. according to regulations.
