Commercial banks have simultaneously reduced deposit interest rates, expecting to stimulate credit demand

Many banks have announced their new interest rate tables. Source: Internet.

There will be two rounds of interest rate cuts within two weeks.

According to the decision of the SBV, interest rates will decrease by 0.3-0.5% from April 3, 2023. Specifically, the maximum interest rate applied to non-term and term deposits under 1 month will decrease from 1.0% per year to 0.5% per year; the maximum interest rate applied to deposits with terms from 1 month to under 6 months will decrease from 6.0% per year to 5.5% per year.

The survey of new deposit interest rates of many commercial banks shows that banks have adjusted the interest rates for short-term deposits, even at a level lower than the regulated interest rate ceiling.

Specifically, the maximum interest rate applied to non-term and term deposits of less than 1 month has decreased to the NHNN-regulated level of 0.5%/year, and many banks have even listed it at 0.1-0.2%/year. For the term from 1 month to less than 6 months, many banks have also reduced the maximum rate to 5.5 %/year, but there are also many banks at lower levels.

For example, the "big player" Vietcombank has reduced the interest rates for most terms by 0.2%/year. The savings interest rate for 1-month and 2-month terms is stable at 4.9%/year, and the 3-month term is kept at 5.4%/year. However, for terms from 6 months onwards, the bank's interest rates have decreased across the board, with 6- and 9-month terms at 5.8%/year and terms over 12 months at 7.2%/year. The interest rate chart is also similar for 3 other state-owned commercial banks, namely VietinBank, BIDV, and Agribank.

For the group of joint-stock commercial banks, OCB also adjusted the interest rates by 0.5 %/year for many terms. Specifically, the interest rate for non-term deposits is only at 0.2%/year, the 1-month term interest rate decreased to 5.2%/year, from 3 to 5 months at 5.4%/year, and for terms from 6 to less than 12 months at 7.7-7.9%/year. In addition, OCB applies the highest rate of 9%/year for terms from 18-36 months.

Nam A Bank has recently reduced its deposit interest rates to cut costs and encourage lending. For longer-term deposits, the bank offers an online interest rate of up to 8.7% per year for a 12–14 month term, while the highest rate for in-person deposits is 8.1% per year for 14-23 month terms.

Other banks such as Saigonbank, TPBank, OceanBank, and SHB have also lowered their deposit interest rates by 0.1-0.6% per annum for terms ranging from 6 months to over 12 months. This is the second large interest rate reduction in just two weeks, following the SBV's recent adjustment of operating interest rates.

According to the SBV, the reduction of the deposit interest rate ceiling for terms of less than 6 months is aimed at helping credit institutions reduce their input costs, thereby allowing them to lower their lending rates and support customers in reducing their financial costs. Furthermore, the SBV will continue to adjust the maximum lending interest rate for short-term loans in VND for priority sectors to 4.5% per annum to create conditions for enterprises and people to access loans at lower costs in these priority sectors, in line with the government's policy.

Experts and businesses believe that these actions will stimulate credit demand, as credit in the first quarter of 2023 is increasing slowly due to enterprises' difficulties. However, it may take some time for the lending interest rates to decrease, so businesses are hoping for improvements in accessing capital.

Appropriate action but not complacent

Governor of the State Bank of Vietnam (SBV), Nguyen Thi Hong, stated at the online national conference with localities and the regular government meeting in March 2023 that the interest rate level is currently showing a downward trend. Therefore, the SBV has adjusted its operating interest rates by reducing them by 0.5-1% based on low inflation. The Federal Reserve (Fed) has also adjusted its low-interest rate hike trajectory, and the system's liquidity is abundant while deposits remain high due to SBV regulation.

However, this is still a "contrary" move in the context of major central banks in the world continuing to raise interest rates to curb inflation. For example, in February and March 2023, the US raised its benchmark interest rates twice, each by 0.25%. In March, the European Central Bank increased its benchmark interest rates by an additional 0.5%, while Singapore increased it by 0.44%.

Regarding this issue, Mr Nguyen Quoc Viet, Vice Director of the Institute of Economic and Policy Research (VEPR), said that the SBV's reduction of the operational interest rate is an appropriate move for some reasons. Specifically, in Vietnam, the inflation situation is still forecasted to exist, but the pressure is not as high as in 2022, and the inflation trend in the first few months of the year has also slowed down. Moreover, the system's liquidity is relatively abundant, and businesses face difficulties, so the pressure on capital is not as high as at the beginning of the fourth quarter of 2022.

In addition, the crises at some banks around the world, while not creating a domino effect on the global financial market, have affected the monetary policies of many countries. As a result, the trend of tightening monetary policies may slow down, and the USD may not strengthen as expected.

However, the SBV stated that it is not complacent with the inflation pressure still close to the target of 4.5% in January 2023, so it will continue to closely monitor the domestic and international monetary developments, forecast inflation and market interest rates, and continue to direct credit institutions to have cost-cutting solutions to stabilize lending interest rates to support businesses' recovery and production and business development.