What updates do you have about the CASA ratio in the second quarter of 2024?

Le Hoai An, founder of Integrated Financial Solutions Joint Stock Company

In the second quarter of 2024, the CASA ratio in Vietnam’s banking sector experienced a robust recovery, which has significantly contributed to reducing the cost of capital for banks. The CASA ratio, which measures the proportion of non-term deposits, rose from 18 per cent at the beginning of 2023 to over 21.4 per cent in the first half of 2024. This notable increase reflects banks' improved ability to attract low-cost funds by offering payment solutions to both individuals and businesses. The surge in the CASA ratio indicates a favourable shift in banks' liquidity management and their competitive edge in maintaining low interest rates.

However, this improvement also highlights underlying challenges within the sector. The strong growth in CASA has been accompanied by volatile credit growth, as the increased CASA has been partly driven by credit activity, which may not be sustainable in the long term if there is unstable credit expansion and weak credit demand. This volatility poses risks to the banking sector, so banks must balance between sustaining CASA growth while managing the associated risks of credit and liquidity in an uncertain economic environment.

Could you provide a more detailed analysis of the factors influencing the improvement in CASA ratios recently?

The recent improvement in the CASA ratio has been influenced by multiple factors, particularly the cash flow from large corporations and changes to banking business strategies. Part of this improvement is due to enhanced services, as both state-owned and private banks have intensified the provision of payment utilities and financial solutions for large corporations and enterprises. This helps create stable cash flows but also increases the amount of non-term deposits made by corporate clients. These are low-cost funds that allow banks to reduce capital costs and maintain competitive lending rates, thereby attracting more customers.

Additionally, credit growth, particularly credit extended to large corporations, has played a significant role in boosting the CASA ratio. When credit growth is strong, cash flow from business operations is maintained and circulates through non-term accounts at banks, increasing the CASA ratio. However, this reliance on credit also heightens credit and liquidity risks, making the banking system more vulnerable when economic conditions are unfavourable. Smaller banks, lacking access to large corporations, face greater challenges in improving their CASA ratios, as they do not have the service advantages and customer networks that larger banks possess.

How has the fluctuation in the CASA ratio played out across different banks within the sector?

The CASA ratio has fluctuated among various groups of banks, reflecting the business strategies and adaptability of each group. State-owned banks such as VietinBank and Vietcombank have seen significant growth in their CASA ratios, respectively 22.5 per cent and 34.2 per cent, thanks to the expansion of payment services and the implementation of promotions aimed at attracting corporate clients. This has helped these large banks to strengthen liquidity, reduce capital costs, and maintain competitive interest rates.

Private banks like MB Bank and Techcombank have also witnessed a high proportion of CASA in their deposits, which reached approximately 37 per cent in the second quarter of 2024. This result was driven by substantial investments in digital technology and digital payment services, attracting a large number of corporate clients with frequent payment needs and high cash flows. These banks have leveraged stable cash flows from their networks of large corporations, particularly in the real estate and construction sectors, thereby improving their access to low-cost capital.

Commercial banks focusing on retail loans, such as ACB and VPBank, have seen a more modest improvement in their CASA ratios. However, some banks have shifted their focus to medium and large enterprises, slightly improving their CASA ratios. In 2024, ACB has prioritized credit growth from corporate clients rather than focusing on individual customers as in the past.

On the other hand, smaller joint-stock commercial banks have faced significant challenges in maintaining and improving their CASA ratios. Most of these banks have only achieved CASA ratios below 10 per cent due to a lack of diversity in financial services and difficulties in attracting customers. This has made them more reliant on higher-cost term deposits, leading to higher capital costs and affecting their competitiveness in offering preferential interest rates.

In your opinion, what does the disparity in CASA ratios between large and small banks mean for the sustainability of the banking sector?

The disparity in CASA ratios between large and small banks is a crucial indicator for assessing the viability and growth potential of smaller banks in an increasingly competitive environment. Smaller banks are facing significant challenges in maintaining stable CASA ratios, which requires innovation in business strategies and service improvement. This difference also raises concerns about the sustainability of the current business models of smaller banks, especially as they compete with larger banks in terms of capital costs and risk management capabilities. In the long term, without an appropriate strategy, smaller banks may find themselves limited in their ability to select loan customers and manage bad debt risks.