Uptrend in deposit rates may stagnate

Interbank rate has cooled

Amid easing FX pressures, the State Bank of Vietnam (SBV) continued to actively support the banking system in September 2024, aiming to lower the interbank interest rates. The OMO interest rate was trimmed for the second time this year by 25bps to 4%. As of September 30, 2024, a net amount of about VND 128.2tn had been injected into the system, with interest rates of 4% - 4.25% and tenors of 7 days, including VND 22tn of matured T-bills.

Moreover, the SBV has proactively halted the issuance of T-bills since late August 2024. Additionally, with the exchange rate stabilizing significantly, the State Treasury has revealed its demand to purchase US Dollar from commercial banks for a maximum value of USD 350mn in September 2024. Consequently, this will further expand the Vietnam banking system liquidity by an estimated VND 5.8tn. The overnight rate, which stood at 4.3% in early September, dropped sharply to 3% - the lowest rate in the past 2 months.

However, it suddenly surged to 4.3% in the last week of the month, signaling a liquidity shortage in the system that was partially impacted by the steady revival in credit growth. According to the SBV, as of September 30, 2024, credit growth had risen by 9% compared to the end of 2023. By the end of the month, interest rates span between 4.1% - 4.2% for different tenors, ranging from one week to one month.

Small increase in deposit rates expected

The upward momentum of deposit rates continued to stall in September and October, with only a few banks choosing to raise their rates by 0.1 to 0.5 percentage points, reflecting favorable liquidity in the system during the first few weeks of the month.

Notably, the Typhoon Yagi caused extensive damage and severe disruptions, preventing several companies from meeting their debt obligations. As a result, this could add more pressure to the volume of bad debts in the system (which had already increased by 5.8% in 1H24 compared to the same period last year). Therefore, this has further encouraged banks to bolster their reserve buffers to mitigate risks via attracting new deposits. The average 12- month deposit rate for commercial banks has edged up by 13 bps since the beginning of the year, reaching 5%, while the rate for state-owned banks remained unchanged at 4.7%, which is 26 bps lower than at the start of the year.

We observe a recovery in credit growth, coupled with robust production and investment growth, which may exert pressure on liquidity and potentially lead to an increase in deposit rates. As of September 30, 2024, credit growth had risen by 9%, higher than the 6.92% recorded in the same period last year. However, on the downside, MBS expects subdued inflation and lower FED fund rates to create more room for easing monetary policy in Vietnam. Considering all these factors, it anticipates that deposit rates will inch up by an additional 20 bps by year-end. Consequently, the average 12-month deposit rates of large commercial banks should range between 5.1% - 5.2% by the end of the year.