Credit growth is low while deposit rates are still on the rise. This shows that commercial banks tend to “save” capital for business activities in the following months and ensure that capital ratios are in line with regulations.
Surveys on the deposit market showed that, for 12-month and longer tenors, deposit rates of banks are popular at 6.9-7.9 percent per annum (p.a.). However, in many cases, deposit rates are over 8 percent p.a. with special savings products. For example, Vietnam Prosperity Joint Stock Commercial Bank (VPBank) offers the “Prosperity” saving package with the highest interest rate of up to 8.6 percent p.a. At Nam A Joint Stock Commercial Bank (Nam A Bank), the interest rate for tenor of 15 months or long is 8.1-8.4 percent p.a. The highest interest rates of Bac A Joint Stock Commercial Bank (Bac A Bank), Vietnam Joint Stock Export Import Bank (Eximbank) and National Citizen Bank (NCB) are 8 percent p.a. The highest long-term interest rate of Viet Capital Commercial Joint Stock Bank (Viet Capital Bank) is 8.6 percent p.a.
About the interbank market, the report of the Research Department of Viet Dragon Securities Joint Stock Company stated: “The liquidity in the banking market is not abundant”.
Since mid-March, overnight rates on the interbank market have suddenly rebounded sharply after continuously calming down from the beginning of the year. Borrowing demand in the interbank market is also quite high, maintaining over 50 trillion dong per session, the highest level in recent years. In general, over the past six months, this interest rate has continuously fluctuated above the threshold of 3 percent and has not shown any sign of decline.
This report predicts that in the second quarter of 2019, the interbank overnight interest rate will still fluctuate in the range of 3-4 percent, however, this movement is still under the control of the operator.
“Besides, the interbank overnight interest rate kept over 3 percent threshold will also create a safe distance from interest rate applied to same loans in foreign currencies, currently about 2.45 percent. A positive gap helps the State Bank of Vietnam (SBV) regulate the exchange rate accordingly. From the beginning of the year until now, the risk of exchange rate has declined a lot when the exchange rate in free market and banks’ exchange rate have cooled down. In contrast, SBV still adjusted the central exchange rate to create a wider margin, avoiding the case that the exchange rate continuously hit the ceiling like in the previous period” the report said.
Regarding credit growth, data published by SBV showed that credit growth in the first quarter was only 2.28 percent compared to the end of 2018, much lower than the figure of 3.5 percent and 4.3 percent of the same period in 2018 and 2017 respectively.
Meanwhile, many banks have announced that credit growth plan is much higher than the guidance of 14 percent of the whole system of the State Bank. At the same time, there is a big gap in the credit growth plan of banks.
Specifically, Vietnam International Joint Stock Commercial Bank (VIB) plans to increase credit growth up to 35 percent this year; this figure of Military Commercial Joint Stock Bank (MB) is 20 percent; the expected credit growth of Vietcombank is 15 percent. Meanwhile, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) has set a growth rate of 13 percent. Notably, Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) only set credit growth target of 6-8 percent.
The above situation shows that banks are increasing their capital from the market but are reluctant to lend. Commenting on this, Associate Prof Dr Nguyen Khac Quoc Bao, Head of the Faculty of Finance (Hochiminh City University of Economics) said that it is suitable with the actual operating capacity of banks and monetary policy operating orientation of SBV.
“SBV’s executive message has shown that credit controls will continue to be tight and set a modest figure for credit growth compared to previous years. This way of operating is reasonable in the context of the real estate market showing signs of warming up. In addition, the increase in gasoline and electricity prices poses a risk of expected inflation. Credit control will help stabilise the macro economy and stabilise the banking system,” Bao said.
With commercial banks, the first quarter is not the optimal time to race for profit. On the other hand, from 2019, banks must also meet stricter standards for capital adequacy. Therefore, the best way for banks is to increase mobilisation and be conservative in lending.
Having the same view, Dr Nguyen Tri Hieu, a banking expert commented: “Low credit growth in the first quarter is reasonable for banks to have time and room to continue restructuring activities. In fact, the bad debt ratio in many banks is still high. Moderate credit “discharge” will help banks spend resources for restructuring in accordance with the orientation of the State Bank. ”
Forecasting the prospect of interest rate in the second quarter, Hieu said: “Interest rates are difficult to reduce but not necessarily surge, the trend of interest rate increase may take place slowly until the end of the year.”
