The Association of Financial Investors (Vafi) has just proposed solutions to gradually reduce the VND deposit interest rate to 0%/year like other developed economies, in order to ensure extremely low lending interest rates. from 2% to 5%/year. Many economists and bank leaders frankly, proposing a breakthrough solution at this time is very valuable, but it is necessary to calculate with solid and feasible bases, not “in the cloud”. !
According to Vafi, currently many developed economies in Europe and the US have a deposit interest rate of 0% per year in domestic and foreign currencies, even some countries still maintain negative interest rates (collecting deposit fees) to guarantee extremely low lending interest rate (2%-5%/year depending on borrower and loan term). Some countries in the ASEAN region such as Thailand, Philippines, Malaysia, Singapore also have short-term deposit interest rates for local currencies at 0%, long-term deposit interest rates in the range of 0.2-0.7 %/year.
As noted by the reporter of Nguoi Lao Dong Newspaper, as soon as this proposal was made, there were reactions from the market, including depositors.
As office workers, Mr. and Mrs. Nguyen Ngoc Tan (30 years old, living in District 12, Ho Chi Minh City) often pack so that all family expenses do not go into deficit. In addition to work at the office, Mr. Tan and his wife also work overtime to improve their income. The extra money he and his wife often keeps separately and saves. He chooses to automatically deposit savings, every month, the bank deducts directly from his salary account. Married for 10 years, every month, Mr. Tan and his wife have saved more than 240 million and attached interest. This amount of money, Mr. Tan and his wife said, will continue to make a profit and to support their children to go to college…
Saving is a safe investment channel for people with idle money Photo: TAN THANH
Mr. Tan said he was surprised by Vafi’s absurd proposal. “Currently, commercial banks are racing to deploy incentive packages to attract customers to save, but Vafi proposes to move away from reality. The economy is difficult, money is very hard to make, especially during the Covid-19 epidemic- 19. To keep a small amount of savings, each person has to weigh and measure each dong.When the bank’s interest rate is getting lower and lower, many people have withdrawn money to invest in higher profit channels such as buying gold, opening accounts. If the interest rate is 0%, will banks be able to mobilize idle money for lending?” – Mr. Tan raised the question.
Leaders of a commercial bank recognize that savings are also an investment channel and an important investment channel because they attract a large amount of idle cash flow from residents and organizations. In particular, savings is a public investment channel because it does not need investment knowledge and has little risk (almost zero in Vietnam). Vietnamese people who have a sense of saving should send NH as a channel for them to choose. Savings deposit does not discriminate between large and small amounts, easy procedures.
“If now the deposit interest rate is pulled to 0%, where will the idle cash flow not go to commercial banks? Even for businesses, when banks can’t raise capital, they don’t lend, forcing businesses to find capital sources in other banks. Other channels will certainly have high interest rates, pushing up product prices and thereby creating more inflationary pressure,” said the leader of this commercial bank.
Risk of market disorder
Dr. Can Van Luc, a member of the National Monetary Policy Advisory Council, analyzed that inflation in Vietnam is much higher than in the world and in the region. In 2021, Vietnam’s inflation forecast may be around 3.5%, while that of the global market is about 2.8%, China’s 1.8% and ASEAN-4 about 2%. People have the expectation of depositing money in banks to enjoy interest rates at least higher than the inflation rate to enjoy positive interest rates, without being “lost money” invisibly.
“If the deposit interest rate returns to 0%/year when inflation is still around 3.5%, will people be interested in depositing money in banks or switching to other more attractive investment channels? At that time, the banking system is medium-sized. lack of deposits, both suffers from liquidity risk and does not have enough money to meet the credit needs of the economy. business investment, where to get resources for growth, to secure jobs?” – Analysis by Dr. Can Van Luc.
Dr. Ho Quoc Tuan, a lecturer at the University of Bristol (UK), argued that a reduction in deposit interest rates to 0% will cause money to flow out of the banking system, shifting to channels such as gold, foreign currencies, stocks, land, “heat up” financial and real estate markets. Meanwhile, Vietnam is in the golden population stage, the social security benefits for the people are not as high as many countries, so the savings demand of the Vietnamese is great. People need a safe investment channel to deposit their savings as well as generate a reasonable interest rate.
“The narrowing of savings deposit interest rates will create unpredictable socio-economic consequences and only enrich a few people through the explosion of financial and real estate markets” – Dr. Ho Quoc Tuan warned.
According to Vafi, over the past time, the drop in deposit interest rates has resulted in a huge cash flow pouring into the stock market, which has helped the banking system and the domestic business community to survive, develop or reduce interest rates to direct the flow of money. idle money into the bond market with an interest rate of 2%/year.
Many experts believe that this proposal has no scientific and practical basis. Dr. Ho Quoc Tuan analyzed that when deposit interest rates are pushed to 0%, people have many channels that can achieve profits above 2%/year, but with higher risks such as corporate bonds and informal loans. , stocks… Studies in the world and practice show that people will tend to listen to acquaintances who put money into channels with high interest rates with the risk of losing money. In Vietnam, 2%/year is too low an interest rate for people to care about and they will put their capital in riskier places.
Dr. Can Van Luc said that if the deposit interest rate falls to 0% and the cash flows into the stock market as argued by Vafi, then the enterprise will raise capital by issuing bonds, since there are no assets. secured, mainly unsecured, businesses will have to pay quite high interest rates. Currently, corporate bond interest rates are about 10%-12%/year, usually 1%-3%/year higher than bank loans. So is this an effective capital raising problem? If that business goes bankrupt, bond investors almost lose everything because there is no collateral, no deposit insurance like when depositing money in the bank?
Economic expert Dr. Dinh The Hien said financial investment includes many different channels, from securities, real estate, savings or buying government bonds, corporate bonds. In particular, savings is one of the investment channels chosen by many people in Vietnam because of its safety factor, reasonable interest rate compared to the inflation rate.
According to Dr. Ho Quoc Tuan, the fact that large economies keep deposit interest rates at very low or close to 0% comes from the inflation factor, such as Japan and Germany. When US inflation exceeded the 2% target, the US monetary policy council immediately issued a policy to push the base interest rate to 2% in 2023. Vietnam is not in the same condition when it was successful in inflation in the past few years has been kept below 3%-4%. At the same time, many countries with 0% deposit rates have an aging population structure; excess capital; capital costs are therefore very low and need to lend out like Japan…
“Just looking at the interest rate figure without mentioning the macro background, social structure, population, savings and investment policies is extremely flawed” – Dr. Ho Quoc Tuan stated.