Leaders of some state-owned commercial banks said that their banks initially planned to reduce the loan interest rates for some priority customers after achieving good business results in the first quarter (Q1) of 2019, but later must stop this plan.
Vietnam International Commercial Joint Stock Bank (VIB) adjusted the 12-month dong deposit rates from 8.4 percent to 8.6 percent per annum, up by 0.2 percent per annum. Maritime Commercial Joint Stock Bank (MSB) added a 0.4 percent per annum of interest on the current savings interest rate at the time of opening savings book. The bank’s 240month deposit rate is 7.8 percent per annum, and customers will enjoy interest rate of 8.2 percent per annum when participating in this programme.
The highest deposit rate is recorded at certificate of deposits (CD). Viet A Commercial Joint Stock Bank (VietABank) has recently issued CDs at 9.1 percent per annum. Before that, Saigon Hanoi Commercial Joint Stock Bank (SHB) issued CDs at the highest interest rate of 8.6 percent 8.9 percent per annum on terms of 18, 24 and 36 months. Customers with larger deposits and choosing online savings method will be offered higher interest rates. Starting from terms of six months and more, the interest rate difference between banks is up to two to three percent per annum.
Nam A Commercial Joint Stock Bank (NamABank) offers 8.7 percent per annum for 36-month term, applicable for online savings. Viet Capital Commercial Joint Stock Bank (VietCapitalBank) and Tien Phong Commercial Joint Stock Bank (TPBank) both apply interest rate of 8.6 percent per annum for long terms but with different conditions. TPBank offers interest rate of 8.6 percent per annum for customers depositing more than 100 million dong on 24 months with commitment to not withdraw the money before maturity.
The State Bank of Vietnam (SBV) said that in the first six months of 2019, the agency operated interest rates in line with the macroeconomic developments and capital market, stabilised the operating interest rates and directed credit institutions to review and balance finance to apply reasonable lending interest rates on the basis of deposit rates and the risk of the loan, ensuring financial security. The deposit and lending rate level was basically kept stable, while lending rates were popular at six to nine percent per annum on short terms and nine to 11 percent per annum on medium and long terms.
During the ongoing National Assembly (NA) session, an NA member requested the SBV to continue to reduce lending rates to support the business community. That is also the expectation of the SBV and commercial banks, as banks clearly define that the relationship between banks and businesses is a win-win and banks can only operate safely and efficiently if businesses are healthy.
At the conference on implementing banking tasks in the beginning of the year, responding to the request of the SBV’s Governor, four state-owned banks further cut lending rates by 0.5 percent per annum on both short, medium and long terms for priority areas.
However, in the current context, further cutting lending rates is a very tough issue and it does not depend on the subjective will of banks even though they also want to.
In theory, there are only two ways to reduce lending rates, including to cut operating costs to reduce the Net Interest Margin (NIM) and reduce input costs. However, lending rates can hardly be further cut since the current NIM of banks has been decreased to the lowest level after the lending rate level was pulling down faster than deposit rates in recent years.
Analysts believed that to further reduce lending rates, the only way is to lower deposit rates. However, in the context when inflation tends to rise at the present time, it is not feasible.
Statistics show that the Consumer Price Index (CPI) in May 2019 increased by 0.49 percent over the previous month. This is the second highest monthly CPI increase since October 2018, only less than the 0.8 percent recorded in February 2019 which is the Lunar New Year season. Notably, the average CPI has gone up continuously in the first five months of the year, currently reaching 2.74 percent.
According to the macro report in May 2019 of BVSC, the interbank interest rates in the month were generally stable despite the escalating USChina trade conflict. Meanwhile, the deposit rates at commercial banks remained high, particularly on terms from 12 months and more. BVSC assessed that inflation is still under the control of the government.
Nevertheless, the risk to inflation in the near future may come from pork products when the supply is declining due to epidemics, which will have a strong impact on prices of these products in the next two to three quarters. In addition, the upward trend of core inflation is also fairly clear, and it is not creating favourable for the SBV to loosen the monetary policy on a large scale.
BVSC believes that in the context when inflation is inching up and there are risks to the financial market due to the US China trade war escalation, it is a good thing to stabilise lending rates and difficult to have more reduction.
