Interest rate race was still aggressive
According to SSI Securities Corporation, except for two of the four big groups of state-owned commercial banks reducing deposit interest rates from 20 to 30 basis points, even for long periods of 12 to 13 months, most of deposit rates of banks all stayed unchanged. Even some commercial banks with small market shares continued to mobilise terms of over 13 months at the rate of 8.2 percent to 8.5 percent per year.
Currently, the accessible interest rates were about 4.1 percent to 5.5 percent per year with terms of less than six months, 5.3 percent to 7.8 percent per year with terms of six to less than 12 months and 6.4 percent to 81 percent per annum with term of 12 or 13 months; 6.8 percent to 8.5 percent for 24-month term and above.
Notably, after the State Bank of Vietnam (SBV)’s reminder in late August, banks no longer dared to race to raise deposit rates but instead moved to issue certificates of deposit with extremely high interest rates. Accordingly, current customers buying certificates of deposit at Viet Capital Commercial Joint Stock Bank (Viet Capital Bank) could receive interest rates up to 10.2 percent per year for a term of 60 months. Also, with 24-month term interest rate was up to 9.5 percent per year, about one percent higher than the deposit rates of the same term on the market today.
Explaining that, the leader of a bank said that at present, the demand for medium and long-term loans of businesses and people was huge (loans to buy houses, cars, and so on), while mobilised capital of banks was mainly on short terms. Besides, SBV was tending to tighten the ratio of short-term capital for medium- and long-term loans, currently at 40 percent, and expected to fall to 30 percent in the near future.
To meet the market demand and promote business activities, banks had to increase mobilisation of medium and long-term capital. That was the reason why many banks had issued bonds or certificates of deposits recently, the leader said.
Agreeing with this view, a bank expert explained more clearly why banks did not raise deposit rates for long terms but chose the method of issuing certificates of deposit was because the certificate of deposit was often accompanied by conditions for not withdrawing money before maturity. Even many types of certificates of deposit would only receive interest on maturity, while long-term savings deposits could be removed before maturity. That meant the medium-long-term capital mobilised by certificates of deposit were more stable than savings deposits, according to the expert.
Going against the trend
The interest rate race was still aggressive, making the expectation of lowering lending rates even more remote. That movement seemed to be going against the trend of reducing interest rates globally.
According to SSI, the US Federal Reserve (Fed) cut overnight interest rates by 25 basis points to 1.5 percent to 1.75 percent, which was the third rate reduction since the beginning of the year. The Fed’s move had led to 10 other central banks to cut interest rates, most of which was the third cut in 2019.
While in Vietnam, although SBV cut the interest rates by 25 basis points, the current rate was still quite high. The open market operation (OMO) interest rate was 4.5 percent per year, and bill was 2, 25 percent per year. Coupon rates were higher than overnight rates on the interbank market during the past month. With the exchange rate and inflation under control, SSI inclined to the possibility that the operating interest rate (bills) would reduce by 25 basis points for the rest of 2019, said SSI.
However, according to this organisation, the interest rate on the market one was not much influenced by interest rates or interbank movements but was influenced by the demand for credit financing in the peak quarter as well as the capital structure requirements valid from 2020.
In fact, although the four state-owned banks had continued to reduce lending rates for priority areas by 0.5 percent, which was the second reduction in the year, the response of joint-stock private banks was quite weak, mainly because deposit interest rates were currently at an extremely high level.
The opportunity to reduce lending rates was even more challenging when Q4/2019 would also be the quarter to accelerate credit growth and disbursement of public investment. Thus, the source of money in the banking system would likely be less redundant, thereby interbank offered rate and government bond interest rate might rebound slightly in Q4/2019.
However, according to forecasts of many economic experts, the SBV’s move to reduce interest rates would have the effect of keeping the lending interest rate level unchanged in the last months of the year. Remembering at a recent press conference, Dao Minh Tudeputy Governor of SBV also affirmed, in the last months of the year, interest rates would not increase, further decrease or would not depend on macroeconomic and economic indicators.
