Lending interest rates may decrease further

SCB has released many credit programs for business support

Several supporting polycies

On September 7, the State Bank of Vietnam (SBV) issued Circular 14/2021/TT-NHNN amending and supplementing several articles of Circular No. 01/2020/TT-NHNN directing credit institutions to extend debt repayment to support customers affected by the COVID-19 pandemic. Specifically, the restructuring of debt repayment terms for customers will be carried out until June 30, 2022, extending half a year longer than the time limit  specified in Circular No. 01/2020/TT-NHNN. The implementation of exemption and reduction of interest rates and fees for clients affected by the COVID-19 pandemic according to the new Circular also last until June 30, 2022.  

Before that, SBV issued the new Decision 1349/QD-NHNN on August 28, 2021 to replace the old Decision 1349/QD-NHNN dated August 6, 2020. Under the new Decision, the interest rates of reserve requirement deposits in Vietnam Dong and in foreign currencies will be kept unchanged at 0.5 percent and zero percent per annum, respectively. Regarding the interest rates for excess reserves in Vietnam Dong will remain at zero percent per annum, while that in foreign currencies will be adjusted to zero percent per annum, from the previous 0.05% percent per annum as specified in the previous decision.

More measures to be released

The decrease in credit demand as businesses were negatively affected by the recent COVID-19 outbreak pushed interbank interest rates and deposit rates down further. According to Bloomberg data, the overnight rates dropped 23 basis points against late-July to 0.51% on 27 August. Moreover, the interbank interest rates of 1-week term to 2-month term fell in a range of 13 to 25 basis point in Aug 2021. Meanwhile, the 3-month term and 12-month term deposit rates of private banks dropped 11 and 12 basis points, respectively, while the deposit rate of SEO banks stayed flat in August.

According to SBV, Vietnam’s credit growth as of late-Aug 2021 reached 7.4% against late 2020 (vs. 6.4% rate seen in late-Jun 2021). VNDirect maintained its view that the SBV would  be more willing to raise the credit growth ceiling for commercial banks in order to support the economy’s recovery.

In July, SBV had required commercial banks to reduce lending interest rates to support businesses recovery. Following this, commercial banks committed to cut off over VND20 trillion from profit to lower lending rates by 0.5-2.0% for outstanding loans of pandemic-hit clients. VNDirect expected the lending interest rates to ease further to support growth, especially for industries and customers heavily impacted by the COVID-19 pandemic.

Regarding deposit rates, VNDirect maintained its view that deposit rates would increase by 10-15 basis points by the end of 2021, but still remain low compared to prepandemic level.