Lending rates unlikely to decrease significantly

3Q deposit interest rates tended to move sideways and slightly gain for short terms (under 12 months) but decreased for long terms (13 months). Photo: Transaction at SeaBank

The State Bank of Vietnam (SBV) has maintained prudent and easing monetary policy since the Coronavirus outbreak. The bank’s supportive policies focused on three times of lowering the policy rates in 2020. The decreased amount is quite small compared to other countries in the region and mainly financed by commercial banks as per Circular No. 14/2021/TT-NHNN amending Circular 01/2020/TT-NHNN on debt structuring, debt rescheduling, interest and fee exemption, and reduction for customers affected by the pandemic, in addition to requiring commercial banks to keep lowering lending rates.

Meanwhile, the SBV expanded credit room for commercial banks in 3Q, but the new credit cap is lower than every year, which made M2 growth stable and tends to go down slightly.

3Q interbank interest rates plummeted with overnight, one-week, and one-month rates down 38 bps, 46 bps, and 30 bps MoM, respectively. This reflects abundant liquidity right from the beginning of 3Q, partly because the SBV had bought six-month USD from early 2021 and injected the amount into the system in July and August 2021.

3Q deposit interest rates tended to move sideways and slightly gain for short terms (under 12 months) but decreased for long terms (13 months). However, the fluctuation range was relatively narrow (<0.4%), showing that deposit interest rates fluctuated stably and remained at a low level.><0.4%) showing that deposit interest rates fluctuated stably and remained at a low level.

KB Securities said the accommodative monetary policy of the SBV throughout the period from the beginning of the outbreak up to the present would be maintained in 4Q in the wake of potential inflation risks in 2022 although the 2021F inflation rate may be below the Government’s target at 4%. However, the SBV will not adjust the policy rates this year. 

Despite that, the SBV recently announced the return to spot USD purchases and stopped forward trading to have immediate and effective impacts on the currency market, including exchange rates and interbank interest rates stability, liquidity support.

The deposit interest rates, which are currently at low levels, will likely move sideways in 4Q in the wake of potential inflation risks in the next few quarters and cautious support policies. In fact, the current rates caused a significant amount of money to be poured into other investment channels like real estate, securities. The General Statistics Office of Vietnam said the deposit of credit institutions in 9M21 only increased by 4.28% YTD vs. 7.48% YTD in the same period last year.

“The credit growth could reach 10% for the whole year because credit demand, although forecasted to recover in the peak season of 4Q, will not rebound as strongly as in previous years due to the long-term spillover effects of recent social distancing period. The credit growth rate increased 5.47% by the end of June 2021, but slowed down in 3Q, causing the first nine months’ growth to only increasing 7.17%. Facing weak credit demand, banks lowered loan rates after the SBV recently issued Circular 14/2021/TT-NHNN amending Circular 01/2020/TT-NHNN on debt structure and extension, interest rates and charges exemption or reduction for clients affected by COVID-19”, KB Securities stressed.

However, KB Securities said the lending rates would be unlikely to decrease significantly as banks also need to maintain high net interest income in correspondence with the current high net interest margin, to have room for provisions as bad debts caused by social distancing may surge in the coming time.