The capital demand isshowing signs of increasing again but with abundant liquidity, deposit and lending interest rates are expected to continue the downward trend.
In leary July, some state-owned banks and private joint stock banks lowered deposit interest rates by a common reduction of 20-30 percentage points. Some banks even cut deposit rates by about 50 percent age points. The main reason of this move, according to bank leaders, is because “mobilisation activity is very good even without the incentive programmes and gifts like in the past, while lending growth rate is fairly sluggish.”
The output capital is stuck due to the low credit growth in the first half of the year under the impact of the Covid-19 pamdemic. By June 29th, the credit growth was only 3.26%, a 50 percent decrease compared to the same period of 2019. The difference between capital mobilisation and lending (in dong, excluding foreign currencies) tended to expand sharply by more than 120 trillion dong.
However, a notable point is that in June, the credit recovered to a “normal level” with a growth rate of 1.28 percent compared to May. This growth is certainly just an initial recognition for the recovering of capital demand, but can not solve the story of excessive liquidity, and continuously decreasing capital costs.
The monetary easing policyto create cheap capital is clearly showing results. Not only lowering operating rates, the SBV in the second quarter (Q2) pumped into the system about 150 trillion dong through buying the due bills.
The liquidity excess is also clearly shown in the interbank market, when interest rates on this market fell to nearly zero percent per annum in June, a rarely seen low interest rate level.
The abundant liquidity is also a driving force for the government bond channel, helping the government bond issuance of the State Treasury in June to reach the highest level in one year. Banks with excessive money registered to buy bonds, making the bidding volume in June to always be maintained at three times higher than the offer volume.
Survey of Dau tu Chung khoan showed that the interest rate level of short terms from overnight to less than one week fell deeply by about 250 to 270 points to 0.1 0.3 percent per annum while the rates for terms from one to three months dropped by about 150 250 points to around 0.6 2.1 percent per annum.
Overall, in Q2, the average one-week interest rate was 1.38 percent per annum, down by about 1.1 percent compared to the average level in Q1, and about 2.2 percent lower than the same period of 2019.
“The significantly improved supply source has helped banks reduce capital costs to support revenue, and also protect the Net Interest Margin (NIM) from a sharp decline when lending rates are under pressure of decreasing to support customers to overcome difficulties caused by the Covid-19 pandemic,” said Hoang Van Hoan, deputy general director of Saigon Commercial Joint Stock Bank (SCB).
Bank leaders continued to forecast that the liquidity on the dong interbank market in Q3 will remain stable. The dong average interest rate is forecasted to stay at low levels with an average of about 0.3 0.5 percent per annum for one-week term and 1.8 two percent per annum for term of three months.
According to economic experts, the most important point is that the SBV’s operating policy is predicted to mainly follow easing direction.
Macroeconomic data of the General Statistical Office recently showed that the economic growth of Vietnam in the first six months of the year was only 1.81%, the lowest level in the same period of the past 10 years.
The task of striving for an over five percent growth of the government isbecoming more challenging than ever when the Covid-19 pandemic, despite being controlled in Vietnam, is still very complicated globally.
Sharing similar point that the deposit rates in the near future depend mainly on the management policy of the SBV, general director of a private joint stock bank added two more factors: the credit growth in the second half of 2020 and the roadmap to tighten the ratio of short-term funds used for medium and long-term lending which takes effect in October 2020.
“The credit growth is likely to recover in the second half of the year and the effectiveness of the tightening of the short-term mobilisation used for medium and long-term lending in October 2020 will likely boost the level of competition in deposits and reverse the downward trend of the deposit rates. Thus, deposit rates may slightly increase, but by just about 30 50 percentage points because the possibility that the SBV will adjust the operating rates once again is still open,” said the general director.
Economist Dr Can Van Luc forecasted that in the last six months of the year, interest rates will continue to be stable or may decrease slightly thanks to the SBV’s continuous implementation of monetary easing policy to maintain liquidity for the system, though the room for lowering interest rates is still available but not much in the context when inflation remains high and the pressure of budget deficit is increasing. In addition, although the credit demand is likely to recover, the credit growth in the whole year will not be too high with expectation of nine to 10 percent and the exchange rate will maintain a stable trend.
According to a research by the Capital and Monetary Business Division of Commercial Joint Stock Bank for Investment and Developmento f Vietnam (BIDV), “in the context when inflation is gradually being under control and the financial market is stable, the SBV is having favourable conditions to maintain monetary easing policy to support the conomic growth recovery after the Covid-19 pandemic is controlled. However, we believe that the SBV may not yet adjust the operating rates in Q3 2020. Besides, the dong mobilisation and lending difference is expected to sharply widen when credit activities are still fairly difficult and usually not yet promoted in Q3.”
