BANKS UNDER PRESSURE TO INCREASE CHEAP CAPITAL SOURCES

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 (NIM).

At banks, most of the cheap capital source comes from Current Account Savings Account (CASA), or non-term deposits, which has an interest rate of only around 0.2 per cent per year, much lower than that of term deposits.

However, it is not easy for banks to increase the cheap capital source. According to Q2 2024 financial reports of 28 banks, their average CASA ratio decreased slightly from 15.6 per cent at the beginning of this year to 15.4 per cent 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 per cent.

At BacABank, as of the end of June 2024, the amount of non-term deposits decreased sharply by 41.6 per cent, causing the CASA ratio to drop sharply from 4.4 per cent at the beginning of the year to 2.6 per cent.

At PGBank, the amount of non-term deposits decreased by 12.2 per cent during the period, causing the CASA ratio to drop to only 14.4 per cent, compared to 17.2 per cent at the beginning of the year.

The decline in CASA ratio was not only seen in small and medium-sized 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, and they have also recorded a decrease in demand deposits in the past six months.

Specifically, although holding the leading position in terms of CASA ratio, MB's CASA ratio by the end of June was only 37.8 per cent, compared to 39.6 per cent at the end of 2023.

Techcombank's non-term deposits also reduced by nearly VNĐ1.4 trillion in the past six months, causing the bank’s CASA ratio to decrease by 2.5 percentage points to 37.4 per cent.

According to experts, with a low CASA ratio, banks are at risk of having to rely heavily on capital from different sources to maintain their business operations. A low CASA ratio can also increase the risk of financial risks due to market fluctuations.

When banks cannot increase lending rates and reduce deposit rates, banks with high CASA ratios will be able to cope with the narrowing of NIM. Therefore, banks are actively attracting the cheap deposits to both reduce pressure on NIM and increase operational efficiency.

Từ Tiến Phát, General Director of ACB said, according to market trends, increasing interest rates was inevitable. However, banks must control closely and could not increase deposit interest rates rapidly as it would cause rising capital costs and affect credit growth. Banks with large amounts of CASA would have an advantage to cut capital costs.

A representative of MSB said that the bank would continually aim to promote the CASA ratio until the end of this year through introducing more attractive products and services. MSB targets a CASA ratio of 35-40 per cent in the 2023-27 period.

Source: VNS