In a report to the National Assembly on the use of monetary policy instruments recently, prime minister Nguyen Xuan Phuc issued to strive to reduce loan interest rates by at least 0.5 percent in 2020, especially for priority areas.
The prime minister’s affirmation seemed to be an urgent requirement for the State Bank of Vietnam (SBV) in the context of the existing interest rate race.
According to analysts, to reduce lending rates, banks would have to reduce operating costs or reduce deposit rates. Or else, SBV would have to impose a ceiling interest rate.
In terms of reducing operating costs, that was the goal of many banks in recent years. However, operating expenses were at the limit because lending rates fell faster than deposit rates. Regarding the whole system, the coefficient of net interest margin (NIM) was tending to narrow.
Viet Dragon Securities Corporation (VDSC) assessed that the NIM’s increasing space became more limited, mainly due to the pressure of mobilising medium and long-term capital, a high proportion of retail lending, increased competition in retail lending. Also, the loan to deposit ratio (LDR) was raised to the edge of the threshold. The consumer finance industry had encountered difficulties in mobilising medium and long-term capital.
In the same opinion, VNDirect Securities Corporation forecasted that the banking industry’s NIM in 2019 would only increase slightly, even go sideways.
However, the NIM trend would not be the same among banks because each bank had a different sensitivity to deposit interest rates and capital needs. The advantage would belong to the low LDR banks with broad network helping to mobilise more efficiently, having a high proportion of demand deposits helping reduce capital costs, the team at VNDirect added.
An administrative tool that SBV could use was the ceiling interest rate. However, when it had not yet come to an emergency, SBV probably would not apply that tool.
Thus, it seemed that the method of helping SBV to realise the prime minister’s request was inclined to reduce deposit rates.
The fact also showed that after a race to raise deposit rates and being ‘whistled’ by SBV, from the beginning of November until then, a few banks had actively reduced from 0.1 to 0, 2 percentage points of deposit interest rates. Notably, not only private banks, two state-owned commercial banks, Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), also adjusted downward. In particular, interest rates for short-term deposits from one month to two months of BIDV decreased from 4.5 percent per year to 4.3 percent per year. The interest rates at those two terms at Vietcombank were down to 4.5 percent per year.
However, in a recent report, the research team at SSI Securities Corporation found that the above reduction situation was a minority. Most of the remaining banks’ deposit rates were flat. The deposit rate was still accessible around 4.1 percent to 5.5 percent per year for terms below six months, from 5.3 percent to 7.8 percent per year for terms of six to less than 12 months; 6.4 percent to 8.1 percent per annum with terms of 12 and 13 months.
When VnEconomy discussed the issue with a leader working at SBV, he revealed, since November 18, banks had to lower deposit rates to pull down lending rates.
According to the above leader, currently, the available capital of many banks was very redundant due to the high-risk lending sectors. The operator had tightened so it could not disburse much.
The available capital at some big banks was invested in short-term buying and selling tools of valuable papers of SBV. There were sessions on the open market, the operator only offered one bid, but the bidding volume was 10 times.
At the same time, according to statistics, there were about 14 small banks often falling into weak liquidity. From then until the end of the year was the time of high demand for payment, banks with weak liquidity were only able to push high interest rates. Interbank borrowing was also not easy because some large institutions specialising in capital supply on it always required collaterals and high interest rates. Small banks likely led the mobilising interest rate race because if large banks were interested, they would not be able to mobilise.
Therefore, the requirement to lower deposit rates was necessary to hope that big banks would not be interested in the race. Since then, these 14 small banks could access cheap capital and reduce loan interest rates, said the leader.
