Will deposit rates continue to go up?

>> Credit speed makes it tough to lower lending rates

Interbank interest rates slightly decreased

Throughout June, the State Bank of Vietnam steadily removed excess liquidity from the system via the T-bills channel, with total withdrawals of around VND 121.6 trillion, interest rates rising to 4.25%-4.5%, and tenors ranging from 14 to 28 days. SBV made a fresh move in the monetary market on June 21st, cutting the tenor of Tbills to 14 days to boost the attractiveness of the T-bills channel, with the expectation of raising the interbank interest rate.

Furthermore, decreasing the tenor will allow banks to be more proactive in managing liquidity as the quarter's peak approaches. At the same time, the SBV injected a net sum of about VND 110.2 trillion with 4.5% interest rates and 7-day maturities, including VND 76.3 trillion in maturing T-bills. It is expected that about VND 147.7 trillion T-bills will mature in July.

Interbank interest rates changed substantially this month, rising from 3.7% to break the 4% mark in mid-June. On June 11th, the overnight rate peaked at 4.3% before falling rapidly, and it is presently sitting around 3% despite SBV's multiple efforts to withdraw money from the market. By the conclusion of the month, interest rates range between 3.5% and 5.1% for tenors ranging from one week to one month.

Deposit rates to inch

In June, several commercial banks concurrently raised deposit interest rates, with increases ranging from 0.1% to 0.5%, as loan growth accelerated to 4.45% as of June 24th, up from 2.4% at the end of May. This demonstrated banks' willingness to hike interest rates in order to recruit capital and satisfy growing loan demand during the month.

>> Rising deposit rates raise concerns for Vietnamese businesses

According to the General Statistics Office (GSO), as of June 24th, credit institutions' capital mobilization increased by 1.5% compared to the end of 2023. In contrast, the group of state-owned commercial banks maintained an average 12-month deposit interest rate of 4.7%.

Notably, VietinBank was the only state-owned commercial bank to change deposit rates in June, putting its interest rates ahead of three other banks in the group. Deposit interest rates for 1-11 month periods and 24-36 month longer durations rose significantly by 0.2% each year.

Input rates to rise by 50 bps

MBS predicted that credit demand would begin to rise substantially in the third quarter of 2024, driven by robust production and investment growth. In 1H24, the index of industrial production (IIP) expanded by 7.7% year on year, while the Purchasing Managers Index (PMI) surged to 54.7 in June. Furthermore, governmental and private investments grew by 3.5% and 6.7%, respectively.

"We estimate that the 12-month deposit rate of big commercial banks would increase by 50 basis points and gradually return to 5.2%-5.5% by the end of 2024. However, we expect that output rates will stay stable because regulators and commercial banks are actively working to supply credit capital to firms," MBS predicts