Statistical data from the State Bank of Vietnam (SBV) shows that, every year, the deposits of businesses into banks often decrease and then increase gradually, at the end of the year. The increase does not differ much from the deposits of the population, even exceeding. However, in the first four months of this year, due to the impact of the Covid-19 pandemic, businesses have sharply withdrawn their deposits from banks (the net withdrawal was over 150 trillion dong, while the same period last year it was over 50 trillion dong), it is likely to cover business costs in the context of a heavily affected revenue stream.
Deposits of individuals are also affected. The amount of deposits in banks in four months of this year only increased by over 160 trillion dong, while the same period last year it grew by more than 260 trillion dong.
In the first four months of 2020, total customer deposits only increased by nearly 6.3 trillion dong (equivalent to an increase of 0.07%), while the same period last year to over 200 trillion dong (equivalent to an increase of 2.69%).
From a different perspective, the slow increase of customer deposits in response to less satisfactory credit growth. When the output cannot be increased, banks are also required to reduce the mobilisation of input capital to cut costs.
Demand for capital is small, cheap capital is injected in the interbank market (interbank interest rates are at a record low for a long time recently) so deposit rates for six-month terms and above have fallen quite sharply. According to statistics from SSI Securities Company, from the beginning of the year until now, deposit interest rates of large commercial joint stock banks have decreased by a total of 0.6-0.75 percentage points with terms of less than 12 months (about 4-5.5 percent per year) and by 0.65-1 percent for 12 and 13 month periods (to 5.7-6.2 percent per year).
Reducing interest rates has been a general policy of SBV for many years, however, it is not easy to implement. There have been many times this agency actively pumped cheap capital into the interbank market but did not penetrate significantly into market I (residential market and economic organisations). Meanwhile, lowering the ceiling interest rate for less than six-month period did not have much impact because the money tending to move to a higher term was not imposed. This is understandable because when lacking of capital, banks have to raise interest rates at these terms to raise money.
Another point that dominates the policy of lowering interest rates is inflation. The increase in inflation pressure will raise the interest rate pressure, to maintain positive real interest rates, avoid causing anxiety from the people, on and to absorb money to reduce inflationary pressures.
It can be seen that it is too early to confirm that the current interest rate reduction result will be maintained for a long time after the pandemic, especially until the economy of Vietnam as well as the world gradually recover. Because of the peculiarities affected by the Covid-19 pandemic and the recession, banks are in a rare period of lack of capital. But when the economy recovers, the demand for capital mobilisation will increase, and the pressure to raise interest rates also increases.
The SBV still targets an ambitious 11-14 percent year-on-year credit growth despite taking into account the impact of the Covid-19 epidemic. This ambition is not difficult to understand, because GDP growth for many years has depended heavily on credit growth.
However, as of mid-June, credit growth was only 2.13 percent compared to the beginning of the year. Thus, the pressure to increase credit in the last six months is very large, but not necessarily infeasible because unlike other countries, Vietnam has well controlled the disease since the end of April, an important premise to recover in the second half. If the world economic situation gradually improves after the period of social separation, the “door” to increase credit is even wider.
Demand for capital mobilisation increased to serve credit growth, creating pressure on interest rate hike, on one side. On the other side, inflation pressure is not small. Even in the context of the economic downturn, the average consumer price index (CPI) in the first five months of 2020 still increased to 4.39 percent over the same period last year, the highest level in the last three years. The pressure will be much greater when the economy recovers and as mentioned, the higher the inflation pressure, the greater the pressure to raise interest rates, on the one hand to maintain positive real interest rates, on the other hand, to absorb money back to reduce inflationary pressures.
In the second half of the year, interest rates facing upward pressure will not be small, especially for terms of six months or more due to no ceiling interest rate.