"Awakening" $264 billion deposited in Vietnam's banking system

Investor Research indicates low deposit and mobilization interest rates at commercial banks, with rates fluctuating between 7% and 4.9% per year and 6% for 12-month term savings deposits.

Tracing $264 billion

The State Bank of Vietnam reported a 9.68% increase in citizens' deposit balances at credit institutions, reaching over VND6,430 trillion (-$264 billion) at the end of August 2023, despite low interest rates.

This figure shows that even reduced interest rates cannot stop the flow of savings into banks; the market continues to witness record-breaking bank deposit balances.

The inflation target for 2023 is 4.5%, causing money value erosion. The gold price increase from 2006 to over 70 million VND/tael, more than five times higher, highlights inflation's impact.

This means that if a person hold VND12 million for 17 years, that amount is only enough to buy about 1/5 of the current amount of gold. And the best way to protect assets from being affected is to ensure the investment returns higher than the rate of devaluation caused by inflation.

However, the amount of people's money injecting into the banking system is still at a record high despite low deposit interest rates, showing that other investment channels such as real estate, stocks, bonds, gold... are currently available. 

According to Dr. Nguyen Tri Hieu, a finance and banking expert, from now until the end of the year there will be a large amount of bank deposits maturing, but investors have no other choice but to invest in banks. When the deposit matures, they may renew it with the hope that the interest rate will not decrease further.

In July 2023, Rong Viet Securities Company's Chief Economist Tran Thi Ha My reported an 8.9% increase in residential sector deposits, while capital mobilization from economic organizations decreased by 0.7%. Gold, USD, and stocks are competing with savings deposits.

"We believe that commercial banks' deposit interest rates have reached their lowest point now," My said. "As a result, the savings deposit channel is becoming less competitive over time."

Investment compass in 2024

Since 2015–2016, Vietnam has faced the issue of "awakening" hundreds of tons of gold among the population. However, guiding savings capital flows to investment channels remains a challenging task due to the lack of a common denominator for risks and individual risk tolerance.

It is not recommended that young individuals spend all their money in savings channels or that old men invest all their money in the stock market.

A 2018 survey by Bankrate found that millennials are hesitant to put their money in the stock market. Only 23% of those surveyed (18–37 years old) thought it was the best place to put their money.

They won't need it for another ten years or so. That number is a lot lower than what it was for older generations: 33% of Gen or bitcoins. Meanwhile, 30% of Millennials prefer cash to other payment options.

Since most Millennials came of age during the financial crisis, they are wary of putting their savings into the stock market for a good reason.

Investors currently see many risks in the gold market. Photo: Quy Hoa

Referencing international investment channels, it is easy to see that stocks are always popular in each country. According to data from Swastika in 2020, more than 55% of Americans owned stocks, compared to 33% in the UK. Even in China, the proportion of the population invested in the stock market is 13%. In Vietnam, this rate is over 7%.

Vanguard's 2020 How America Invests Study looks at how wealthy households (those with investable assets of at least $500,000 at Vanguard) invest their money. The results show that the asset allocation of a typical millionaire household is 65% stocks, 25% bonds and 10% cash. More importantly, this ratio appears to decrease as households become wealthier. Once you become a millionaire, business interests begin to dominate most of your assets.

KKR's report demonstrates that ultra-high net worth investors (those with assets over $30 million) invest more money in alternatives (private equity, hedges) and cash. Specifically, ultra-high net worth (UHNW) investors allocate 30% to stocks, 10% to bonds, 50% to alternatives, and 10% to cash.

Stocks are popular due to their high liquidity, profitability, and low barriers to entry, but they are also volatile and risky. In Vietnam, the market is large and influenced by investor psychology, with over 80% of transaction value belonging to individual investors.

Large-cap stocks, including VHM and MSN, experienced a sharp drop in the VN-Index due to unconfirmed rumors and panic among investors. This occurred in October 2022, marking a significant break from their historical bottom.

Guide the flow of savings

Cash flow shifted to the stock market in the third quarter, but due to strong fluctuations in exchange rates and gold prices at the beginning of the fourth quarter, the stock market witnessed a deep adjustment.

VDSC experts predict that cash flow from maturing deposit channels with high interest rates in early 2019 will wait to be allocated to investment channels like stocks, real estate, and corporate bonds, provided economic growth recovers and increases confidence in listed enterprises' profit prospects.

Regarding real estate investment channels, Ms. My believes that the necessary conditions also require more clarity on the legal corridor when the Land Law and the Real Estate and Housing Business Laws are passed.

The Vietnam Real Estate Research Institute's report suggests that investors should consider investing in real estate channels in the last months of 2023 and 2024. As interest rates go down, investors are likely to feel better, and the real estate market should start to recover in the second quarter of 2024. Investors can focus on real needs such as apartments, individual houses, and long-term investments.

“If the investor's financial condition is healthy and the market outlook is positive, the investor can consider using a leverage ratio of 60–70% (equity) and 30–35% (loan capital). ) Because market conditions change too quickly and are unpredictable, we will not be able to predict, especially in the next 10–20 years," the report emphasized.

From the perspective of the stock investment channel, Mr. Nguyen Tien Dung, Head of Stock Analysis Research Department at MB Securities Company (MBS), estimates the profit growth in 2023 of businesses worldwide. The market will reach 3.6%. The forecasted profit growth of listed companies in 2024 could skyrocket to 16.8%. The driving force comes from retail, basic materials, commodities, electricity, and banking.

Experts from Mirae Asset Securities Company said that investors may be interested in businesses with three things in order to get their savings to invest. First, the stability of how the business runs.

They are either manufacturing companies or financial companies that deal with a lot of safety and stability, like the insurance industry. When looking back at past data on profit after taxes, there were not any big changes (unless there was a force majeure event like an epidemic that shut down the business).

Second, pay high cash dividends, creating a stable source of income for investors. According to Mirae Asset, dividend income is a stable source of income. There are still cases that can be picked where companies pay stock dividends because they need to make more investments, but then they go back to keeping dividends high.

Third, profit after tax in the first half of 2023 is positive, creating conditions to maintain dividends of at least 6% in 2023.

Besides the stock market, bonds were also very attractive products to investors. For example, there are 42,000 investors buying bonds from Van Thinh Phat, or more than 6,600 investors buying bonds from Tan Hoang Minh. In fact, when the bond market grows, businesses depend less on bank loans and investors have more ways to use their money in the capital market. Businesses, especially credit institutions, mobilize medium and long-term capital.

Deposit interest rates are falling sharply. Photo: Quy Hoa

After recent violations in the bond market, the Ministry of Finance also stated clearly that individual corporate bonds are financial products only for professional securities investors. Investors need to note that the risks The risk of bonds is the risk associated with the bond issuer, not the risk related to the bond distribution organization, including commercial banks distributing bonds.

According to a representative of VDSC, for the corporate bond market, the level of interest for retail investors has narrowed significantly after the shock in 2022. Therefore, attracting deposits to the investment channel is difficult. This investment will still face certain difficulties, at least until corporate bond maturity pressure is well absorbed in 2024.

More investors are putting their money into professional fund management companies like Dragon Capital and VinaCapital. On the other hand, over 150,000 more investors are putting their money into public funds, which is a 70% increase in the last few years.

Ms. Luong Thi My Hanh, Director of Asset Management, Domestic Division, Dragon Capital, said: "The yield is still good because the fund is managed by experienced and long-standing investment experts. Besides, investing in funds also helps diversify risks for investors because a fund always invests in many industries and companies."

Allocating savings deposits and investing in various channels depends on various factors, but investors need knowledge and flexibility. Diversification is suitable for spreading risk, and preserving asset value during a recession is a successful investment.