The Government of Vietnam targets interest rate stability to support economic growth, but interest rates tend to climb towards the end of the year when corporate credit demands rise sharply.
Deposit rates form a new ground
Small commercial banks started to hike deposit rates several months ago to attract unemployed capital. In mid-October, a number of banks pushed up deposit rates to a higher level.
DongA Bank announced a considerable increase in its deposit rates, by 0.5 percent. Accordingly, 3-month deposits were revised up to 5.2 percent per annum and six-month deposits were adjusted up to 6 percent (up 0.5 percent). Interest rates of 9-month, 10-month and 11-month deposits were added 0.2 percent to 6.2 percent per annum. Interest rates on 12-month or more deposits were hiked by 0.4 percent. Interest rates on 12-month, 13-month and 18-month term were 7 percent, 7.1 percent and 7.2 percent, respectively. This was the second time DongA Bank revised its deposit rates. Earlier, in late September, the lender also added interest rate by 0.4 percent.
Viet Capital Bank also raised its deposit rates by 0.2 percent from October 28. Specifically, interest rates in dong deposits, carrying 3-5-month maturity, were raised by 0.2 percent to 5.4 percent per annum.
Techcombank also adjusted its interest rates on deposits of three-month term or higher by additional 0.1-0.3 percent. Currently, the highest deposit rate was 6.85 percent per annum, imposed on 10-month and 36-month deposits.
Other banks have to follow step to hike their interest rates by 0.1 - .2 percent. Interest rate rising trend is getting clearer when big lenders join the game of interest rate. Vietinbank raised its interest rate on dong deposits by 0.2-0.5 percent. Upper limit interest rates on 1-2 month and2-3-month deposits were 4.8 percent and 5 percent per annum, respectively.
Other big banks like Vietcombank and BIDV still hold still to interest rates, ranging from 4 percent to 4.7 percent per annum for deposits of less than three months. Following the action of Vietinbank, these lenders may join the game soon.
This interest rate hike is aimed to balance capital sources. Credit demand is projected to rise towards the end of the year. Therefore, banks hiked deposit rates in order to mobilise more funds for lending.
Lending rates unlikely to be steady
Credit growth revamped after a long time of slowdown. The Economic Credit Department under the State Bank of Vietnam (SBV) said economic credit climbed 9.54 percent as of August 25, 2015 compared to the end of 2014. This growth more than doubled the last year’s growth of 4.33 percent. The SBV revised target credit growth to 15 - 17 percent this year from 13-15 percent set up at the start of the year. According to experts, the credit growth may exceed 17 percent this year.
High credit demand is attributed to the increase in interest rates although the Government advocates lowering interest rates to support businesses and develop the economy.
The economy has escaped the bottom of the crisis but the recovery is not solid. Businesses still face numerous difficulties and need credits with reasonable interest rates to restore production. Given current interest rates, lending rates are unlikely to fall in the coming time.
Therefore, the SBV is seeing hardship to realise its target of lowering interest rates this year.
Pressures on market operators are clearly expressed by difficulties in balancing the budget by raising funds from bond sales and debt rollovers. As the Government needs to issue a giant volume of bonds, coupon rate hikes will also hinder the objective of lowering lending rates for businesses. Government bond yields have risen fairly rapidly in the first half of this year. For example, the coupon rate on 5-year bonds was revised from 5.3 percent per annum to 6.4 percent.
Meanwhile, businesses still need cheaper interest rates or at least steady at current rates. At a workshop on banking system positioning following restructuring held on October 23, Dr Tran Du Lich, Member of the National Assembly's Economic Committee and Member of the Advisory Council for Financial and Monetary Policies, said that Vietnam may consider reducing lending rates to 7 percent per annum from 2016. However, he wondered that, given the inflation growth of less than 2 percent and interest rate on medium-term loans at 9 - 10 percent per annum, how can we lower lending rates to 7 percent? This is a very difficult task for the central bank.
Le Minh
Vietnamese
