Vietnamese are depositing less money in bank accounts in search of higher returns elsewhere and this is putting pressure on banks to raise deposit interest rates, VN Express is reporting. Notably, concerns have also been raised that this may put upward pressure on lending interest rates which could be problematic in the context of a broader economic downturn.
What looks to have essentially happened here is that demand for loans fell dramatically over the last twelve months or so leaving banks with excess cash and nothing to do with it. Oversupplied with dong, the banks lowered their interest rates, however, this then drove borrowers to invest elsewhere–gold and stocks, for example. It’s not clear if demand has returned or if it might just be that too much cash has been withdrawn for the banks to meet their reserve requirements–credit growth at the end of March was just .26 percent.
That said, this is much more nuanced than it first may appear to be. To get a broader understanding of how credit growth and lending have interacted over the last year or two see: The Dong’s Wild Ride: Unpacked