What is CASA? Benefits of demand deposits for banks and customers

CASA is a familiar term in the banking industry, representing the source of non-term deposits, a key factor determining the cost of capital and operating efficiency of each financial institution. This article will help you understand what CASA is, how to calculate the CASA ratio, and the impact of this index on the bank's profits, liquidity and development strategy, and point out the benefits and limitations of CASA for individual and corporate customers.

Quick summary:

CASA stands forCurrent Account - Savings Account, only demand depositsIncluding checking and savings accounts. It is a low-cost, highly liquid source of capital and serves as the foundation for banking operations.Main features:

• Flexible liquidity:Withdraw/deposit anytime, no transaction limits.
• Low interest rates:Only 0-0.5%/year, helping banks have cheap capital costs.
• Digital utilities:Attached with mobile banking service, ATM card, 24/7 payment.

Formula and meaning of CASA ratio:CASA ratio = (Current deposits / Total deposits) × 100.

• High ratio → cheap capital, better profit margin (NIM).
• Low ratio → high cost of capital, depends on term funding.

Impact on banks:

• Optimizing profits:Reduce mobilization costs, improve ROA, ROE.
• Increase liquidity:Reduce dependence on capital markets.
• Competitive advantage:Developing digital banking, diversified services.
• Positive impact on stock valuationand investor confidence.

Impact on customers:

• Benefit:Fast payment, cost savings, flexible financial management.
• Limit:Low interest rates, not suitable for long-term money holding.
• Business:Optimize cash flow, need to negotiate fees and service terms.

1. What is CASA? What is the role of CASA?

CASA is the abbreviation of the English phrase Current Account - Savings Account, used to refer to the source of non-term deposits in the banking system.

In the current banking system, CASA is one of the important indicators reflecting the capital mobilization capacity and financial health of each bank. This indicator not only shows the effectiveness in attracting cheap capital, but also contributes to improving profit margin (NIM) and competitiveness in the market.

In essence, CASA consists of two main components:

• Current Account (checking account / payment account): Mainly for businesses and individuals with many transactions, usually no interest or very low interest; unlimited withdrawals and deposits.
• Savings Account (non-term savings account): For individuals, it has a cumulative feature and usually pays very low interest, but can still be withdrawn at any time.

Current and savings accounts are the two main components that make up the CASA ratio.

To put it in a more understandable way: When financial reports or bank analysis mention CASA, customers can understand this as a source of non-term deposits that customers maintain at the bank to serve daily transaction needs such as receiving salary, payment, transfer or spending.

2. Formula for calculating CASA ratio and the meaning of this ratio in banking

In principle, the CASA ratio reflects the proportion of demand deposits to total capital mobilized from customers.

The most standard formula used by banks and financial analysis organizations is:

In case of expansion to reflect a more comprehensive capital mobilization structure, it can be calculated as:

In there:

• Non-term deposits: Payment account, savings without term.
• Deposit: Security for transactions such as L/C, guarantee.
• Term deposits: Term savings.
• Valuable papers: Certificates of deposit, corporate bonds, etc.

CASA ratio is one of the ratios reflecting the quality of mobilized capital and the efficiency of capital use of the bank.

This index is not only quantitative, but also provides important insights into the capital mobilization structure, financial management efficiency and customer engagement level of the bank. Specifically:

• High CASA ratio usually shows that the bank has a low cost capital structure and tends to be more stable than expensive sources of capital,mainly from current accounts and demand deposits. Thanks to low funding costs, banks can expand lending at competitive interest rates while maintaining high net interest margins (NIM). This is a positive sign, demonstrating effective capital management and customer confidence in regularly using the bank's services.
• On the other hand, low CASA ratio reflects the bank's heavy dependence on term funds or loans from the capital market. These sources often have high mobilization costs, putting pressure on banks to reduce NIM, affecting operating efficiency and competitiveness.

In short, the higher the CASA ratio, the more advantageous the bank is in managing capital costs, improving business efficiency and strengthening long-term financial health.

3. The importance and impact of CASA on banking

The CASA ratio is not only an indicator of capital structure, but also has a direct impact on the bank's profitability, competitiveness and financial health. These effects can be seen more clearly through the following aspects:

3.1. Profit optimization

When the CASA ratio is high, banks can take advantage of low-cost funding, which brings many strategic benefits:

• Increase net interest margin (NIM): Thanks to the difference between low deposit interest rates and high lending interest rates, banks can expand credit more effectively.
• Increase core profit: Cheap capital helps banks increase profits from core business activities, while improving important financial performance indicators:
  • ROA (Return on Assets): Return on total assets, reflects the profitability of all bank assets.
  • ROE (Return on Equity): Return on equity, a measure of how efficiently shareholders' capital is used.
  • NOPAT (Net Operating Profit After Tax): Profit after tax from core business activities, demonstrating the ability to generate sustainable profits.

CASA growth is an important lever to improve bank profitability

Thus, high CASA not only helps banks reduce capital costs, but is also a strategic lever to improve operational efficiency, profit growth and overall financial health.

3.2. Liquidity balance and risk management

The majority of CASA comes from demand deposits, which are stable and regular, providing banks with important advantages in liquidity and risk management:

• Increase natural liquidity: Stable CASA can help banks maintain standard liquidity adequacy ratios Basel III (such as LCR - Liquidity Coverage Ratio, NSFR - Net Stable Funding Ratio), depending on the capital structure and risk management policy of each bank.
• Reduce dependence on other sources of capital:
  • Short-term funding from the interbank market
  • Issuing securities with high interest rates

Thanks to that, banks can proactively allocate capital for lending and investment, limit refinancing risks and reduce the impact of fluctuations in mobilization costs according to market cycles.

3.3. Competitive advantage, service development and impact on investors

Banks with high CASA not only optimize capital costs but also carry many strategic advantages:

• Invest heavily in digital banking and service ecosystem: Stable capital from CASA helps banks proactively develop digital platforms, improve customer experience and expand service distribution channels.
• Implement promotions, low fees and cross-sell: Low cost of capital allows banks to offer attractive incentives, encourage customers to use more services, and increase revenue from service fees.
• Create a sustainable foundation for market share expansion: High CASA consolidates long-term capital, supports strong development of retail and business sectors, and enhances competitive position.

A high CASA ratio has clear advantages not only for banking operations but also for share prices and investor confidence:

• Low cost of capital, stable profits: Cheap capital from CASA helps banks maintain high net interest margins (NIM), bringing stable and sustainable profits. This creates the foundation for attractive stock valuations in the market.
• Reduce the risk of business performance fluctuations: When interest rates change, banks are less dependent on expensive or volatile sources of capital, leading to more stable business results and increasing investor confidence in their ability to manage risks and mobilize capital effectively.
• Attract long-term capital and upgrade reputation: In market reality, banks with high CASA ratios are often evaluated more positively by analysis teams, especially in terms of capital costs and sustainable growth, becoming a reliable choice for long-term investors and international organizations.

Thus, CASA is not only a financial index, but also a strategic tool to help banks increase their competitive advantage, develop services and strengthen investor confidence, playing an important role in sustainable growth.

However, these assessments are market overviews and are not investment recommendations. Stock performance depends on many factors such as macroeconomics, asset quality, risk management, and individual bank policies.

High CASA helps the bank to be evaluated as "Blue-chip banking" with a sustainable growth foundation

4. 5+ Influence of CASA with customers

CASA is not only useful for banks but also helps customers (individuals and businesses) make appropriate financial decisions, from choosing to keep money in a payment account to optimizing business cash flow. The main impacts are analyzed as follows:

4.1. Benefits to customers

CASA brings many practical values ​​to individual users:

• High convenience: CASA accounts allow for quick execution of everyday transactions (money transfers, bill payments, salary receipts), integration with e-wallets and automatic payment services, helping to reduce the time spent on financial management.
• Save on transaction costs: Many banks offer free money transfers, free account maintenance, or fee incentives when customers keep active payment accounts, which reduces monthly transaction costs for customers.
• Flexibility in financial management: Users can easily track cash flow, allocate spending, use the automatic savings feature (sweep), and quickly access consumer loan products or overdraft limits when needed.
• Additional benefits: Cashback programs, partner incentives, small insurance with the card, increase the user experience and the actual value of the CASA balance. Many banks apply fee incentives or cashback depending on each program and accompanying conditions.

CASA can help customers significantly reduce transaction fees depending on each bank's policy.

4.2. Restrictions on customers

Despite its convenience, CASA has some limitations that customers should consider:

• Low interest rates: Money kept in demand accounts usually earns very low interest rates compared to term savings; if the goal is to maximize yield, customers should allocate idle money to higher-yielding instruments.
• Non-interest rate risk and incentive dependence: Some promotions (cashback, 0 VND fee when qualified) may come with consumption conditions or minimum balances, causing customers to change spending behavior that is not consistent with long-term financial goals.
• Personal financial management risks: Due to convenience and high liquidity, customers easily let "idle money" lie in their accounts instead of planning for investment/savings, leading to lost profit opportunities.
• Opportunity cost: Especially with large amounts, the low profitability of CASA is a significant opportunity cost compared to term deposits or short-term investments.

5. Frequently Asked Questions (FAQ)

1 - Is CASA always better than term deposits?

Not absolutely. CASA is good in terms of cost of funds and liquidity, but term deposits are needed for long-term lending planning. Balancing CASA and term deposits is a requirement of effective ALM management.

2 - Should customers leave money in CASA long term?

If the goal is to make a profit, it is not advisable to leave a large amount of idle money in CASA because of low interest rates. Customers should allocate between payment accounts (to meet liquidity needs) and term savings or other investments to optimize yield.

3 - How does CASA affect loan interest rates?

High CASA helps banks have lower costs of funds, which in turn allows them to offer more competitive lending rates, or improve interest margins to increase profits.

CASA is one of the most important indicators to assess the ability to mobilize low-cost capital, liquidity and operational efficiency of banks. For customers, CASA brings convenience in transactions and financial management; for banks, CASA is a strategic resource to improve NIM, expand services and reduce pressure on capital markets.

To make the most of CASA, banks need to combine digital technology strategies, flexible products, customer engagement programs and tight risk management, while customers need to consider liquidity and profitability goals when allocating deposits.

In short, CASA plays a key role in improving the efficiency of capital mobilization and competitiveness of banks. A high CASA ratio helps optimize capital costs, improve net interest margins, while providing liquidity initiative and expanding the service ecosystem for customers. In the context of strong digital transformation in Vietnam, developing sustainable CASA capital sources has become a key strategy for banks, especially in the retail and small and medium-sized enterprise segments.

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