Bank lending rates expected to fall in 2020

Illustrative image (Photo: Vietnamplus)

Low inflation, steady foreign exchange rates and tools available to the State Bank of Vietnam (SBV) to monitor money flows are among the factors that will enable credit institutions to cut the interest rates.

Hoang Minh Hoan, deputy director of the Sai Gon Commercial Joint Stock Bank, said the current exchange rate stability, record high foreign exchange reserves, solid economic growth, and faster credit growth than deposit growth are likely to drive the cuts.

The liquidity available in the banking sector and lower refinancing and discount rates are also factors, according to Hoan.

Generally speaking, most current macroeconomic factors support the stability of interest rates, which allows lenders to reduce them after the Lunar New Year.

Ngo Dang Khoa, country head of global markets at HSBC Vietnam, agreed with Hoan, saying that the Vietnamese dong remains one of the most stable currencies in the region despite the global political instability and economic events at home.

He said its value against the US dollar remained virtually unchanged through 2019, sometimes even appreciating as the central bank actively intervened.

This and the FDI flowing into Vietnam enabled it to buy huge amounts of dollars, thus increasing the country’s foreign exchange reserves to a record 73 billion USD on October 30.

Through the course of the year it bought 16 billion USD.

Besides, the trade surplus in the first 11 months of the year was a record 9.1 billion USD.

The World Bank estimated overseas remittances to Vietnam in 2019 to reach 16.7 billion USD, up 4.6 percent from the previous year. Credit growth for the year was only 12.1 percent while deposit growth was 12.5 percent.

All this had left a lot of liquidity sloshing around in the market.

Meanwhile, inflation remained at around 2.79 percent for 2019, down from 3.5 percent in 2018 and much lower than the target of 4 percent set for 2019.

Besides all this, the central bank has a few extra tools now to streamline money flows.

With effect from November 1, for instance, the money raised by issuing bonds now has to be kept in a Treasury account with the State Bank of Vietnam instead of depositing at State-owned banks like BIDV and Vietcombank.

Tax revenues, hitherto kept in the Treasury’s collection/payment accounts with banks, are now kept in the Treasury Single Account (TSA) at the SBV. The TSA is the account into which all revenues of all government agencies go.

This means the central bank sits on a pile of cash it can readily inject into the market to bring down interest rates as it sees fit. Many analysts have thus suggested that bank lending interest rates could be cut by 0.75-1 percentage point in 2020.