VCN - In 2020, experts forecast that the economy will experience many complicated developments, which will affect the interest rates of banks in Vietnam. Therefore, keeping interest rates stable and lowering interest rates are the goals that need great efforts not only for the banking system.
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|The banking industry is always trying to reduce interest rates to support the economy. Source: Internet.|
Many dominant factors
The US-China trade war continues to be the biggest driver of global markets. The unpredictability in the trade relationship of the two leading economies has greater negative effects than the effects of tariffs. The agreement between the US and China on the part of the trade agreement just before the tax increase deadline of December 15, 2019 has helped the whole market relieve its burden. Besides, the broadening of monetary easing of many central banks also contributed to fading the economic slowdown, the Brexit process in the UK had positive signs. However, the world economy remained strong. There are still many uncertainties, especially geopolitical tensions in many countries. In addition, in recent days, the whole world is facing an outbreak of acute coronary disease caused by coronavirus originating from Wuhan, China. Therefore, these issues will be risks forgrowth and financial markets in 2020.
In Vietnam, monetary policy is still on the right track with many imprints in management. Contrary to the uptrend when entering the peak season, the exchange rates and interest rates in the last month of 2019 werequite calm. Experts of SSI Securities Company believe that, in line with the global trend, Vietnam's monetary policy in 2019 has shifted to a more pronounced easing. The State Bank of Vietnam (SBV) has simultaneously reduced the rates of administration, in which two times the interest rate on the open market (OMO) and three times the interest rate of treasury bills were reduced, the total reduction was 0.75%. The fluctuation of interest rates on the interbank market has been significantly reduced, at about 2.25-4%/year. The SBV also lowered the ceiling on maximum interest rates in VND of commercial banks.
However, the fact shows that the interest rate reduction of banks has not really spread, especially the level of interest rate reduction in thelong term is not high, because many small commercial banks are still in demand. The demand for capital is high due to the increase in safety in SBV's operations. Moreover, the SBV has been using the policy management tool of credit growth limit assigned to commercial banks since the beginning of the year. Therefore, in 2019, deposit interest rates increased in the first three quarters, especially for long terms with an increase of 0.7-1.2%, but then decreased slightly. In some banks at the end of the year, thanks to easing of SBV, the decrease was not much.
With the above developments, the SBV said that the VND mobilizing interest rate is popular at 0.2-0.8%/year for demand deposits and terms of less than 1 month; 4.3-5%/year for term deposits from 1 month to less than 6 months; 5.3-7%/year for deposits with a term of 6 months to less than 12 months; tenor of 12 months or more stood at 6.6-7.5%/year. VND lending interest rate are common at 6-9%/year for short term; 9-11%/year for the medium and long term. USD lending interest rate are common at 3-6%/year; in which short-term lending interest rates are at 3-4.7%/year, medium and long-term lending rates are at 4.5-6%/year.
|Deposit rate movements for 13-month terms from January 2018 and forecast until June 2020. Source: SSI.|
Slight downward trend
The Department of Macroeconomics and Forecast, Institute of Strategy and Financial Policy (Ministry of Finance) forecast that in 2020, Vietnam's economic growth will be 6.5-6.8%, but inflation will remain at a low level of about 3-3.8%. However, the Vietnamese economy still faces many risks, especially the impacts from the globaleconomy because Vietnam is an economy with large openness and is strongly dependent on the external sector. Therefore, experts believe that keeping interest rates stable will takea great effort.
According to the macroeconomic situation report of VCBS Securities Company, in 2020, the factor that creates pressure on deposit rates related to the intrinsic situation of the current banking system is in line with the orientation of SBV required to improve risk management capacity, safety indicators and aim to meet international standards on the banking system. This means that the pressure on capital sources for banks will increase significantly with possible effects such as raising interest rates.
In the opposite direction, VCBS stated that the goal of stabilizing interest rates at a reasonable level to support growth can be achieved with the main supporting factors such as: many countries around the world, especially the US Federal Reserve (Fed) is loosening monetary policy, reducing interest rates; foreign cash flow into Vietnam was maintained, creating favorable conditions for the SBV to actively regulate money supply and liquidity in a reasonable manner when necessary; exchange rates and foreign exchange markets were stable with reasonable fluctuations of VND compared to other countries in the region; the SBV may use some administrative measures if necessary to limit the competitive pressure on deposit mobilization among banks.
“Deposit rates are expected to be under pressure, but the expected increase is not large in the range of 0-50 basis points (0-0.5%), focusing on long terms of 12 months or more. Meanwhile, the expected lending rates will not have many changes and maintain the current level,” said VCBS.
Meanwhile, experts of SSI said that deposit rates are likely to continue to fall based on the two platforms: liquidity of the banking system and direction from the Government. Commodity prices and the foreign exchange market are variables that can accelerate or slow down interest rates. Moreover, the reduction of interest rates in long terms will still witnessgaps among banking groups, because the orientation of reducing the proportion of short-term mobilized capital for medium and long-term loans will be nearly three years before the end. At the same time, many experts also said that interest rates are likely to decrease slightly in 2020 when the mobilization pressure of commercial banks to ensure short-term mobilization rate for medium and long-term loans and repayment. Basel II applications will gradually decrease. Besides, the inflation pressure is not high, the demand for credit growth of commercial banks and the low mobilization of government bonds will support the process of lowering interest rates.
However, Dr. Nguyen Tri Hieu said that if the SBV loosens monetary policy by reducing interest rates to push a monetary supply into circulation, it will inevitably lead to high credit growth, because people and businesses will borrow more. But the biggest impact of this is the impact on inflation, while the Government always wants to keep inflation below 4%. In early January of this year, many commodities increased prices, so they had to use monetary instruments to curb inflation – interest rates were one of them. Therefore, the regulator has to keep the monetary policy smart and at the same time meet the capital supply for businesses. However, if inflation is well controlled, interest rates can be reduced, especially when real interest rates (excluding inflation) remain relatively high in the region, so there is room for the SBV to continue cutting interest rates.
By Huong Diu/ HuuTuc