SSI Securities Corporation (SSI) said that the new ceiling interest rate would not affect much to four big banks and Vietnam Technological and Commercial Joint-Stock Bank (Techcombank). Meanwhile, lowering the deposit rate ceiling would help Asia Commercial Joint Stock Bank (ACB) reduce 471 billion dong of mobilisation costs, Military Commercial Joint Stock Bank (MB MBBank) would reduce 411 billion dong, and Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) 171 billion dong.
The analytical department of SSI has just released a report assessing the impact of rate cut by the State Bank of Vietnam (SBV).
Banks can decrease hundreds of billion dong of mobilising cost from the new interest rate ceiling.
For the reduction of ceiling rate (applicable to demand deposits and term deposits with less than six months) and lending rates (short-term lending in dong is applied for six priority sectors as stipulated by the government), SSI believes that it will directly impact on market interest rates.
“We have looked at deposit rates at various banks and found that state-owned banks including Vietnam Bank for Agriculture and Rural Development (Agribank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and commercial bank such as Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) have all lowered the interest rates below the new ceiling rate. Therefore, we believe that the new interest rate cap will not have much impact on these banks, and the deposit rates of most tier II banks are now higher than the new ceiling and will be adjusted to reduce to conform to the new regulations,” the analysis team forecasted.
Specifically, SSI estimates that the rate cut as mentioned above will help reduce mobilisation costs of banks in 2020, such as ACB (471 billion dong), MBB (411 billion dong), and VPB (171 billion dong). On the other hand, Vietcombank, BIDV, Vietinbank and Techcombank (among other banks) can continue to benefit from the fact that demand deposits are lower than competitors, thanks to the advantage of payment services and pay salaries to maintain current account savings account (CASA) customers.
In addition, deposits will be drawn into longer terms to help banks improve their operating ratios to comply with current regulations.
As the spread of deposit interest rates between tier III banks and others will gradually narrow, banks with a good credit history and/or better financial health are likely to attract more deposits, similar to the situation in 2011.
In that case, SSI estimated that interbank lending activities of tier I and II banks would thrive. Meanwhile, the cap on short-term lending rates for the six priority areas will not have a significant impact on these areas. State-owned commercial banks (SOCBs) have the largest credit balance in this sector. In 2019, Agribank, BIDV and Vietcombank reduced lending rates three times to five percent per year, which is already lower than the new ceiling of 5.5%. In contrast, this interest rate at Vietinbank is six percent, which will reduce 50 bps immediately.
Increasing deposit interest rates at SBV will bring 247 billion dong to the banking industry.
To assist commercial banks to reduce lending rates and restructure loan repayments, SBV has increased interest rates on deposits of various types of credit institutions at SBV. SSI estimates the total required reserve of the whole system is 164 trillion dong, equivalent to 1.86 percent of total mobilisation in 2019.
Accordingly, an increase of 20 bps interest rate for compulsory deposits in dong will directly bring an additional 247 billion dong of interest income for the whole banking industry in 2020. SSI believes that the total mobilisation of Vietnam Development Bank (VDB), Vietnam Bank for Social Policies (VBSP), People’s credit funds and various microfinance institutions at SBV are considerable in scale.
Regarding the lending interest rate of SBV to commercial banks, there will be indirect effects, because the demand for loans of SBV at this time is relatively low in the context of abundant systematic liquidity. This interest rate will act as a ceiling for interbank interest rates. Interbank interest rates have recently dropped and the analyst team is forecasted to stay below 3.5 percent for the rest of 2020, covering the three-month term. This may cause Net Interest Margin (NIM) to decline in the interbank market.
