Cheap capital helps banks reduce lending rates to increase competitiveness while still maintaining high net interest margins. — Vietnam News
HANOI: Banks are under pressure to increase cheap capital sources, as the cost of capital is a vital factor for banks’ profit growth.
The cheap capital sources have become more important for banks when they have to reduce lending interest rates to boost credit growth, while still having to increase savings interest rates to lure depositors for the past three months.
In this context, the cheap capital helps banks reduce lending rates to increase competitiveness while still maintaining high net interest margins.
At banks, most of the cheap capital source comes from Current Account Savings Account (CASA), or non-term deposits, which have an interest rate of only around 0.2% per year, much lower than that of term deposits.
It is not easy for banks to increase the cheap capital source. According to the second quarter of 2024 financial reports of 28 banks, their average CASA ratio decreased slightly from 15.6% at the beginning of this year to 15.4% at the end of June. Specifically, CASA ratio of 12 banks reduced while 12 banks recorded an increase and at four banks it remained unchanged.
The reports also showed that up to 17 out of 28 banks had a CASA ratio of below 15%.
At BacABank, as of the end of June 2024, the amount of non-term deposits decreased sharply by 41.6%, causing the CASA ratio to drop sharply from 4.4% at the beginning of the year to 2.6%.
At PGBank, the amount of non-term deposits decreased by 12.2% during the period, causing the CASA ratio to drop to only 14.4%, compared with 17.2% at the beginning of the year.
The decline in CASA ratio was not only seen in small and medium banks, but also big banks, such as MB, Techcombank and Vietcombank, who were always at the top of the banking system in attracting cheap capital. — Viet Nam News/ANN
