Lending rates unable to decrease

According to the central bank’s (SBV) Credit Department, as of May 8 the banking sector’s credit expanded 3.69 per cent, a record compared to similar periods in the past few years.

Despite the soaring credit growth, bank deposits only expanded by 1.67 per cent by the end of April against the 2.94 per cent hike over the same period in 2014.

SBV figures also show that the lending to deposit ratio of the entire system is steadily growing.

Specifically, by the end of this February it reached 84.2 per cent, slightly higher than the 83.6 per cent at the end of 2014. The rate peaked at 95.4 per cent at state-run commercial banks.

In respect to SBV’s recent move to devaluate the Vietnamese dong against the greenbacks by 1 more per cent, the executive of a joint-stock bank assumed that the move inspired a number of people to hoard dollars, a tendency which may negatively impact banks’ efforts to mobilise capital in the upcoming time.

“From late 2014, I thought the further relaxing of lending rates was unlikely. In fact, despite the fair credit growth, we have witnessed a slowing rise in deposits. If this continues, we would be forced to race to allure depositors, making the realisation of the central bank’s commitment to softening lending rates even harder,” said the executive.

According to banking expert Nguyen Tri Hieu, rising exchange rates may prompt a part of depositors to convert their money at banks from dong into dollars. Therefore, banks may consider hiking deposit rates to retain their customer base.

Can Van Luc, a senior bank advisor, however, assumed this movement would not be significant as at this point of time most other investment channels have proven less attractive.

Accordingly, in light of the SBV pledge of 2 per cent exchange rate revision this year, there has been no more room for further adjustment to date, meanwhile other channels like gold and security remain risky.

According to Vo Tri Thanh, deputy director of the Central Institute for Economic Management, there are four factors making it difficult to further slash bank lending rate. These include the recent exchange rate revision, the danger of rising inflation, slowing bank deposit and still high demand for government bond issuance.

Earlier, in Directive 01/CT-NHNN enacted early this year, SBV Chief Nguyen Van Binh has urged banks to relax the lending rates of their medium and long-term loans by an additional 1-1.5 per cent.