Despite deep reduction of deposit interest rates, clients prefer short-terms

Regulating deposit interest rates of some banks have now changed significantly compared to the time when the basic interest rate had sometimes climbed to 14% a year. The curve of deposit interest rates is now parallel to the deposit terms. Namely, the longer deposit terms are, the higher deposit interest rates are. However, depositors still prefer short-terms.

According to a general director of a bank, short-terms are preferred because clients do not feel secure after the recent strong fluctuations in interest rates. As for investors, few people choose long-term deposits because they are also interested at movements of other investment channels such as stock, real estate, gold.

Namely, at Eastern Asia Bank (EAB), one-to-three-term deposits worth one billion dong or lower are entitled to interest rates of 7.8—8.2% a year. For 12-month terms, deposit interest rates fluctuate from 8.8 -9% a year based on different deposit amounts.

Similarly, Vietnam Bank for Private Enterprises (VPBank) sets interest rates for below-one billion-dong deposit at 8.4% a year for 6-8-month terms, 8.2% a year for three-month terms. For one billion-dong deposits or higher, the interest rate is 8.4% a year for three-month terms and 8.6% a year for 6-9-month terms.

Nevertheless, depositors tend to select short-terms although short-terms are entitled to lower interest rates than longer terms. Explaining such a trend, finance analysts say that by the end of the year, investors no longer feel interested in new investments, businesses, particularly when the stock market, the real estate market are forecasted to face difficulties times.

Many experts have forecasted that not until the end of the first quarter of 2009 or even longer, will the basic investment channels be able to recover. Thus, although deposit interest rates have deeply dropped against the last two months, investors still ask banks to keep their capital in order to seek new opportunities in the next year.

Nguyen Viet Hai, general director of ACB Securities Co, said that the stock market now has more business opportunities because of cheap share prices however investors still feel indifferent to shares. Thus, idle money is deposited into banks in order to wait for new investment opportunities.

Economists said that depositing money into banks remains profitable and safer because investing into stock, real estate and even gold contain high risks.

Well knowing the above tendency, some banks have strived to raise deposits by applying short-term interest rates higher than the long-term ones. Namely, in ACB, the highest interest rate applied for three-month terms is 7.9% a month. At Viet A Bank, the highest interest rate is 8.4% a year applied for three-to-four-month terms. Meanwhile, Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) sets the deposit interest rate at 8.1% a year for three-month terms, higher than 7.8% a year for six-month terms and 7.5% for nine-month terms.

After the basic interest rate was cut to 8.5% a year, money inflows into banks have comedown, compared to the first three quarters, disposable income with banks is more. Meanwhile, capital disbursement at banks has slowed down or even reduced. For example, at ACB, credit balance by the end of November reached only 20% but in the first two quarters, this figure was reported at 30%. Sacombank said that the bank's credit balance only slightly increased in last months although the ceiling interests rate is now only 12.75% a year. Sacombank finds it hard to obtain credit growth of 30% as initially planned by the central bank. (DTCK)