Further fall projected for interest rates

June 13, 2023 | 09:27
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Several banks have followed the State Bank of Vietnam’s (SBV) lead by lowering their base interest rates, aiming to encourage and facilitate increased credit demand within the market.
Further fall projected for interest rates
Banks have taken proactive steps to reduce rates in recent weeks, photo Le Toan

Techcombank last week announced adjustments to its base interest rate, resulting in a reference rate of 8.8 per cent per annum for individual customers seeking real estate, car, and consumer loans with terms ranging from one to five years.

For projects, Techcombank’s base interest rate varies between 8.65 and 9.25 per cent for the same term range, while the reference interest rate stands at 9 per cent.

Earlier, Sacombank initiated an early base interest rate adjustment, reducing it by 0.4 per cent compared to the beginning of the year for terms of one month or longer.

Several other banks, including MSB and ABBank, have undergone similar adjustments, resulting in a cooling effect on savings interest rates across various terms.

Based on data from VNDirect Securities, the private banking sector has experienced significant drops in the average savings interest rates for 3-month and 12-month terms.

Since the beginning of May, these rates have decreased by 57 and 28 basis points, respectively. Similarly, state-owned banks have observed an 80bps decrease in the 3-month term and a 40bps decrease in the 12-month term for average deposit rates.

Economist Dinh Quang Hinh anticipates that the average 12-month deposit interest rate will decline to 6.5-6.7 per cent per annum by the end of 2023.

“This forecast considers factors such as reduced credit demand stemming from sluggish economic growth and the gloomy real estate market. Additionally, the government’s promotion of public investment will inject more funds into the economy, creating opportunities for further reduction in operating interest rates by the end of 2023,” Hinh said.

Experts from SSI Securities shared a similar perspective, suggesting that deposit rates may drop by an additional 50-100 bps from now until the end of the year, with further decreases expected in 2024.

Nguyen Hung, CEO of TPBank, said that the bank had continued to reduce lending interest rates by 0.3-0.8 per cent since the beginning of June.

“This marks the fifth reduction in lending interest rates by TPBank since the start of the year. The estimated total interest expense reduction for customers from TPBank’s support amounts to approximately VND323 billion ($13.46 million),” he said.

A representative from BVBank told VIR, “BVBank took proactive measures by reducing interest rates on April 19, thereby aligning its current interest rates with the newly established regulations set by the central bank. This strategic move aimed to provide support and assistance to BVBank’s clientele.”

Furthermore, towards the end of May, BVBank introduced a comprehensive financial package known as the “Flexible 24-hour Loan.” This exclusive offering specifically caters to small-scale businesses that often encounter obstacles in obtaining capital. Under this programme, clients seeking financial assistance can expect swift approval of their loan applications, typically within the same day.

“BVBank, in particular, has carried out four successive cuts in deposit interest rates and concurrently implemented an expansive preferential credit programme. These concerted efforts have been accompanied by expedited disbursement processes,” the representative said.

According to Mirae Asset Securities, a continued reduction in the deposit ceiling rate by 0.5 per cent would yield positive repercussions for industries burdened with substantial short-term and long-term debt obligations.

Drawing from comprehensive data analysis encompassing the conclusion of 2022, it is evident that five industries – real estate, steel production, food processing, agriculture and aquaculture, and construction – currently exhibit elevated borrowing levels. Consequently, these sectors are poised to derive significant benefits in the immediate future as a direct outcome of the interest rate reduction.

SBV Deputy Governor Pham Thanh Ha highlighted the effectiveness of the operating measures undertaken from March to May, leading to a decrease in interest rates. Recent data indicates that average lending rates for new loans currently stand at approximately 9.07 per cent, representing a 0.9 per cent decline compared to the end of the previous year.

“We believe interest rates are falling and will continue to fall in the near future,” Ha said.

Bui Nguyen Khoa, head of Market Analysis at BIDV Securities, believed that interest rates cut serves as a significant supporting factor in accelerating the stock market’s recovery process after a downward cycle. The decrease in interest rates will to some extent attract investors, thereby improving overall market liquidity.

“However, the average trading value per session has only increased by 2-3 per cent on a weekly basis. This reflects the cautious sentiment of investors towards an unclear market trend and a strong net selling activity from foreign investors,” Khoa said.

Policy interest rate expected to further reduce in H2 2023 Policy interest rate expected to further reduce in H2 2023

The analysts also expect the average 12-month deposit interest rate will drop to 7 per cent per year in 2023.

Vested interests doing damage in banking Vested interests doing damage in banking

Concerns are being raised by various stakeholders in Vietnam’s banking sector regarding the risks of cross-ownership, emphasising the need for regulatory reforms to enhance transparency, mitigate the dominance of major shareholders, and propose measures such as reducing ownership ratios and expanding information disclosure.

By Le Luu

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