Lending interest rates need to be further reduced

After the State Bank decreased interest rates four times, the market deposit interest rate has cooled dramatically compared to the end of 2022. The current market interest rate of 8%/year for deposits with a duration of 12 months has practically vanished. The greatest savings interest rates are currently around 7.5-7.8% and are mostly found in small commercial banks.

Although lending interest rates have reduced following the State Bank's adjustment of operating interest rates, credit growth remains slow due to weak credit demand in the early months of the year.

According to the State Bank of Vietnam, the credit system of the entire system reached over VND 12.32 million billion as of June 15, 2023, up 3.36% from the end of 2022 and 8.94% from the same period the previous year.

According to State Bank of Vietnam data from May 2023, the average lending interest rate of domestic commercial banks for new and old loans with outstanding balances is 9.5-11.2% per year. For priority sectors, the average short-term lending interest rate in VND is around 4.5% per year.

From the perspective of Vietcombank Securities Company (VCBS), with the operating interest rate adjusted by the State Bank to a low level similar to the epidemic support period, there is room to further reduce the operating interest rate. not much in terms of overall macro balances.

Meanwhile, for deposit and lending interest rates, VCBS is forecasted to continue to decrease further in the coming time. More time is needed before credit increases quite well again. The reduction in lending interest rates is lagged and differentiated between industries.
 
Mr. Do Hoang Phuc of TCSC said that with the current low-interest rate orientation, Vietnam is facing certain challenges in the future. Rates will be an issue worthy of attention. Currently, the swap interest rate between VND and USD is negative, about 4%.

This difference will make the need to hold USD higher, putting pressure on the exchange rate if there is a fluctuation in foreign currency flow out of Vietnam. Regarding domestic capital inflows, TCSC believes that the most important factor is still a favorable business environment because this is a long-term capital inflow.
 
“In this respect, Vietnam is still one of the attractive countries to attract FDI in the long term. In the short term, the visit of the President of the Republic of Korea and leading Korean enterprises promises to bring many positive signals about foreign currency capital flows, "said Phuc.

Sharing with investors, Mr. Do Hoang Phuc, analyst of Thanh Cong Securities Company (TCSC), assessed the credit growth of 3.36% as low in recent years. This growth was largely contributed by banks with a high proportion of loans related to real estate businesses such as Techcombank, VPBank, and MSB. The weak purchasing power while the high price of imported raw materials makes the demand for loans low, especially in production and business.

On the credit supply side, mobilized capital still increased by 3.06% as of June 15, 2023, a not low figure in the current context. System liquidity is abundant, but in fact banks still do not pursue credit at all costs, but put risk management on top. This invisible medium makes the lending interest rate level has not decreased significantly as expected.