What are the prospects for interest rates?

The 3-month term deposit rates are fixed from 3.45-3.55%/year at TPBank

As of 1 Nov 2021, the 3-month term deposit rates remained unchanged compared to the level at the end of 2020 while the 12-month term deposit rate average at 5.53%/year, falling about 10 percentage points compared to the level at the end of 2020. Meanwhile, the interbank interest rates have rebounded from historic lows in late-2020 but are still very low relative to pre-pandemic levels.

Concerning lending interest rates, the SBV is implementing an interest rate compensation package with a scale of VND3,000bn. It offers lending interest rates of only 3-4%/year for businesses strongly affected by the COVID-19 pandemic. 

Moreover, the Government plans to expand the scale of the package of interest rate compensation for businesses to VND10,000-20,000bn, focusing on some priority audiences, including (1) small and medium-sized enterprises, (2) businesses participating in several key national projects, and, (3) businesses in certain industries (tourism, aviation, transportation...). Thanks to these supportive policies, VNDirect expected lending rates to decrease by 10- 30 basis points in 2021F, on average.

Regarding deposit interest rates, VNDirect said the deposit rate is unlikely to remain at a historic low in 2022F due to the following reasons (1) higher demand for fundraising as credit accelerates, (2) inflation pressure in Vietnam could pick up in 2022, (3) banks must compete more fiercely with other investment channels such as real estate and securities to attract capital inflow. As a result, it is expected that deposit rates to slightly increase by 30-50 bp in 2022F. It also sees the 12-month deposit rates of commercial banks could climb to 5.9-6.1%/year at the year-end of 2022, which are still lower compared to a pre-pandemic level of 6.8%/year.

In case Circular 08/2021/TT-NHNN is not extended for one more year as proposed at present, the banks shall maintain a maximum ratio of short-term capital for the provision of medium-term and long-term loans from 37 % to 34 % beginning on 1/10/2022. Banks reduce the ratio by lowering short-term capital or increasing medium- and long-term loans.

Meantime, the NIM improvement trend will likely be rather uneven across individual banks, as their sensitivity to competition for deposits and need for funding mobilization vary widely. VNDirect said banks with the following advantages would have more opportunities to improve their NIM thanks to the following factors. 

First, a high CASA ratio or lower loan-to-deposit ratio can lead to lower funding costs, while facilitating lending rate reduction. 

Second, the ability to borrow in foreign currency can lead to lower funding costs in the stable exchange rate. 

Third, banks have opportunities to increase their exposures to individual lending which will enjoy better asset yield.