Interest rates are unlikely to fall sharply at the end of the year

Inflationary pressure, exchange rate

After the State Bank of Vietnam reduced operating interest rates four times in a row since the beginning of 2023, the recent wave of deposit interest rate reductions has also brought the current lending interest rate level to a low level.

According to the State Bank of Vietnam, VND lending interest rates have decreased by an average of about 1.5% - 2% per year compared to the end of 2022 and are expected to continue to decrease in the coming time due to the impact of policy lag after adjustments to reduce operating interest rates.

Deputy Governor of the State Bank of Vietnam Dao Minh Tu said that the State Bank of Vietnam will continue to operate interest rates in a gradual downward direction, instructing commercial banks to save costs and reduce lending interest rates for businesses. However, HSBC Bank experts said that there are many risk factors such as the average inflation in 2023 is forecast to increase to 3.4% instead of 3.2% as previously forecast. Therefore, there is no longer an expectation that the State Bank of Vietnam will cut interest rates this year; the conditions to ensure a further 0.5% interest rate cut are no longer in place due to increasing inflation and foreign currency pressure.

According to the leader of a commercial bank in Ho Chi Minh City, lending interest rates have recently decreased, but as previously high-cost funding sources have reached maturity, it will be difficult to further reduce lending interest rates. Since the beginning of October 2023, the State Bank has reduced the ratio of short-term capital for medium- and long-term loans from 34% to 30%, but pressure from inflation and exchange rates will prevent further reductions.

“The bank is implementing a positive real interest rate policy, meaning savings interest rates are higher than inflation, while savings interest rates are currently low. If they decrease further, they will hit the inflation threshold, so it is forecasted that lending interest rates will remain flat from now until the end of the year. If they decrease, they will be very slight,” said a bank leader.

Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, also said that the State Bank may not need to further reduce operating interest rates, because the current mobilization interest rate is at a reasonable level, which will trigger a decrease in lending interest rates, thereby helping to improve credit growth.

Deputy Governor of the State Bank of Vietnam Dao Minh Tu acknowledged that when interest rates fall sharply, exchange rate stability is at risk of being disrupted, affecting foreign debt and national credit rating...

Strengthening supply-demand connection

Despite the sharp decrease in interest rates, credit growth as of October 11 was only 6.29%, much lower than the same period in 2022 (11.12%) and the management orientation for the whole year of 2023 (14% -15%). Therefore, Prime Minister Pham Minh Chinh has just signed an official dispatch on continuing to resolutely implement solutions to increase access to credit capital and remove difficulties for production and business activities.

In addition, further strengthening the connection between banks and enterprises, continuing to support and share effectively with customers in difficulty, promoting the recovery of production and business activities. In order to meet the capital needs to boost production and business during the peak season at the end of the year of enterprises, the banking industry is currently urgently pushing capital into the economy with many different credit stimulus solutions.

Specifically, Sacombank has just added 13,000 billion VND to serve short-term production and business with interest rates from 5% - 6%/year; from now until December 31, Vietbank also applies a service product package with a loan interest rate from 6.3%/year within 24 months, the maximum loan amount is 100% of the capital usage plan; Vietbank reduces an additional 0.5%/year for customers who already have outstanding loans at the bank...

Meanwhile, Mr. Tu Tien Phat, General Director of ACB, informed that the bank is applying attractive interest rates for corporate customers, especially import-export and manufacturing enterprises.

“To boost credit growth in the last months of the year, in addition to mortgage lending, ACB also promotes unsecured lending, especially in the export sector,” said Mr. Phat.

In addition, the banking sector is also focusing on connecting supply and demand to remove difficulties for businesses and strengthen policy communication. Since the beginning of the year, the State Bank has organized hundreds of meetings and connections with businesses across the country.

Deputy Governor of the State Bank of Vietnam Dao Minh Tu affirmed that the bank will take drastic measures with the support of localities, creating conditions to remove difficulties for businesses in the context of economic difficulties. However, analysts assessed that credit growth will be difficult to achieve the target of 14% but will still reach the target of 10%-12% based on the expectation of a recovery in consumption of the individual customer segment at the end of the year.

Besides, credit demand in industries is more positive thanks to import-export activities, and the real estate sector is gradually removing legal obstacles.

Continue to effectively organize and implement mechanisms and policies.

According to Mr. Nguyen Duc Lenh, Deputy Director of the State Bank of Vietnam, Ho Chi Minh City branch, in Ho Chi Minh City, credit in the first 9 months of 2023 grew at a fairly good rate. The bank will strive to consolidate the credit growth trend in the remaining months of the year with the driving force from the low interest rate policy. In the past 9 months, the bank has organized 25 conferences connecting banks and businesses. Thereby, it has signed loans and disbursed preferential credit packages with more than VND 469,000 billion, an increase of more than 100% of the preferential credit packages registered by commercial banks in the area since the beginning of the year.

In addition, nearly VND 24,000 billion has been disbursed from the 2% interest rate support credit package under Decree 31/2023 of the Government, accounting for 42% of the whole country. Based on the achieved results, the banking sector of Ho Chi Minh City will continue to effectively implement policy mechanisms; promote the effectiveness of the bank-enterprise connection program; continue administrative reform and accompany businesses to promote positive factors to create changes in credit activities, creating effective capital circulation and rotation.

Exchange rate remains high despite SBV withdrawing money from the system

In the third quarter of 2023, the US economy grew faster than expected thanks to people spending heavily despite rising interest rates and high inflation. Accordingly, the US GDP in the third quarter of 2023 grew by 4.9%, higher than the previous forecast of 4.7% and much higher than the 2.1% of the second quarter of 2023. This is the strongest growth since the fourth quarter of 2021. Therefore, the USD increased sharply, currently the USD-Index is at 106.62 points. The domestic VND/USD exchange rate is still anchored at a high level even though the State Bank has withdrawn nearly 241,600 billion VND from the banking system in the past month through the treasury bill channel.

Specifically, on October 30, the central exchange rate announced by the State Bank was 24,097 VND/USD; the USD price at commercial banks was around 24,385 VND/USD for buying and 24,725 VND/USD for selling. Currently, the USD/VND exchange rate at commercial banks has increased by 4.2% compared to the beginning of 2023, although foreign currency supply and demand is not under much pressure and fluctuations in the market are not sudden.

By August 2023, people's bank deposit balance will be more than 6.4 million billion VND.

Although commercial banks have sharply reduced deposit interest rates, people's idle money still flows into banks in the context that other investment channels such as stocks, real estate, and bonds still have many risks.

According to the latest updated data from the State Bank of Vietnam, in August 2023, people deposited more than VND 43,700 billion in the banking system - the highest monthly increase compared to the same period in many years, despite the rapid decrease in deposit interest rates during this period. Accumulated to August 2023, the balance of people's deposits in the credit institution system reached over VND 6.43 million billion, an increase of 9.68% compared to the end of last year.

Not only residential areas but also economic organizations' deposits in banks added more than 103,000 billion VND in August. In the first 8 months of 2023, economic organizations also deposited about 6.1 million billion VND in banks, an increase of more than 1% compared to the end of 2022.

Source: https://www.sggp.org.vn/lai-suat-cuoi-nam-kho-giam-manh-post712110.html