Deposit rates have declined, but not significantly

Deposit rates have declined but not significantly. Although many commercial banks reduced rates following directives from the State Bank of Vietnam, the market's deposit rate level remains relatively high, above 8% per year for 12-month terms. Experts say this reality reflects internal pressures within the system, from liquidity to cash-flow structures. Liquidity pressure A wave of deposit-rate reductions has appeared at many commercial banks. However, the cuts are mostly localized and not enough to pull the overall average down to the level expected. In interviews with reporters, Assoc. Prof. Dr. Dang Ngoc Duc, Director of the Institute of Financial Technology at Nam University, said this clearly reflects the “gap” between policy signals and the money market reality. Mr. Duc analyzed that one core reason why deposit rates are slowing to fall lies in liquidity. When credit growth outpaces funding, banks must maintain rates attractive enough to attract deposits. This is the basic supply-demand law of the capital market: when money supply is tight, the price of capital cannot fall quickly. In reality, with credit demand recovering, especially from the corporate sector, many banks must compete fiercely to retain depositors. The pressure is more evident among smaller banks where access to low-cost funds is limited, making rate cuts harder than for larger banks. Deposit rates have fallen but remain at high levels. According to Mr. Duc, in this context banks cannot easily cut nominal rates dramatically if they want to ensure attractive rates for depositors. If deposit rates fall too low, funds may leave the banking system to seek other investment channels, increasing liquidity pressure. Another reality is that the economy's credit demand is high. Businesses need capital to resume production and expand investment after a difficult period. However, household cash flow has not increased accordingly and may shift toward channels such as gold, real estate, or other assets. This pressure pushes banks to maintain deposit rates to balance funding. If rates fall too quickly, there is a risk of term mismatches and liquidity risk, especially as demand for medium- and long-term lending remains large. “It can be said that calls to cut rates are administrative directives. In reality, macroeconomic factors and supply-demand dynamics are the main reasons rates are unlikely to fall sharply,” Mr. Duc said. Depositor psychology and term-structure changes Lawyer Truong Thanh Duc, arbitrator at the Vietnam International Arbitration Centre, said the latest rate movements highlight the funding problem facing the banking system. Rather than locking in long-term deposits to lock in rates, many depositors choose short-term maturities of 3-6 months to stay flexible in the face of market fluctuations. This trend changes banks’ funding structure, while medium- to long-term lending demand remains large, creating a mismatch between deposit maturities and lending. When deposit rates decline, banks' input costs also fall, enabling lower lending rates. However, in reality the reduction is not uniform in practice.