Lending interest rates have room to be reduced further due to the support of positive factors including the recent government resolution that requires the State Bank of Vietnam (SBV) to strive for lowered interest rates.
According to data from the National Financial Supervisory Commission, deposits from economic organisations and individuals have increased since January this year, which was up 0.5 percent compared to the end of 2017.
Meanwhile, the average deposit interest rates in dong for over 12-month terms hovered around 6.55 percent per year in the first two months of this year, up 0.03 percentage point compared to the end of 2017.
Several joint stock commercial banks pushed their long-term interest rates higher, including Viet Capital Bank, with the long term interest rates listed at 8.3 percent per year for 13-month term deposits, up 0.3 percent compared to the end of 2017 and 8.5 percent per year for 15-month term deposits. The slight increase in long-term deposit rates in the first months of this year was due to the fact that the banks are preparing capital for their business plans for the whole year and several banks are also restructuring their long-term capital.
Despite the rise in deposit interest rates, lending interest rates have remained fairly stable. Liquidity of the banking system is more abundant as the amount of idle money after Tet holiday is tending to return.
A recent report by the SBV, on weekly banking activities from February 26 to March 2, showed that average interest rates on the interbank market during the week fell sharply in most of the terms. Specifically, the overnight rate decreased by 1.8 percent to 1.25 percent per year, the one-week rate dropped by 1.8 percent to 1.42 percent per year and the one-month rate decreased by 0.86 percent to 3.12 percent per year.
According to the SBV, in the week from February 26 to March 2, the lending interest rates for prioritised sectors were 66.5 percent per year for short-term loans and 910 percent per year for medium and long-term loans. Meanwhile, lending rates for normal business sectors were 6.8 percent9 percent per year for the short-term loans and 9.3 percent11 percent per year for medium and long-term loans. Short-term lending rates dropped to only 45 percent per year for the group of well-performing customers with healthy and transparent financial situation.
It is said that the current interest rates have received positive support from various factors including the accelerated speed of bad debt settlement, abundant liquidity in the banking system, and improved banking profits. Thus, there remains room, but not much, for lowering interest rates.
According to Dr Le Duc Tho, general director of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), interest rates may continue to decrease in the future, depending on specific areas and specific banks. Tho noted that large commercial banks have pioneered a reduction in interest rates since the beginning of 2018, so there remains less room for further reduction. In addition, interest rates will be lowered selectively towards providing better preferential policies for well-performing customers.
Dr Nguyen Quoc Hung, director of SBV’s Credit Department, also shared the same view as Tho, noting that the interest rates could be reduced but the reduction rates will be modest as they are dependent on many factors including the inflation rate.
Economist, Dr Can Van Luc warned that inflation is becoming more complicated. CPI in February 2018 increased by 0.73 percent over the previous month and advanced 2.9 percent over the same period in 2017. “Although inflation is under control, we need to be vigilant as this year will see many types of planned services to increase prices. When inflation is anticipated to rise, it is very difficult to reduce deposit and lending interest rates,” Luc noted.
In addition, it is important to notice the rate increase by the Federal Reserve System (Fed) which will also increase the pressure on raising interest rates throughout the world, thus, affecting the dong interest rate.
In the beginning of this year, the SBV issued an instruction directing the entire credit institutions to continue reviewing their operations and balancing their financial ability, in addition to reducing operation costs and improving their business efficiency to reduce lending interest rates in order to share difficulties with customers.
“In the near future, the SBV will continue its flexible monetary policy instruments to assist credit institutions in implementing solutions to strive for reduced lending interest rates while ensuring safe and healthy financial operations”, said SBV deputy Governor Nguyen Thi Hong.
Striving to reduce lending rates is one of the key tasks of the banking sector in 2018. This is also a requirement of the government which is defined in the government Resolution No. 18/NQ-CP, dated March 8, that the SBV should manage appropriate credit growth in line with ensuring the credit quality, while accelerating the restructuring of credit institutions, dealing with bad debts and striving to reduce interest rates, among others.
In fact, several large commercial banks have adjusted their interest rates since the beginning of this year. However, the market is still waiting for a wider spill-over effect on the whole system which will require more efforts from commercial banks and enterprises themselves.
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