No system-wide interest rate cuts in sight

20-Jan-2018 Intellasia | The Saigon Times | 6:00 AM Print This Post

There is little sign of interest rates being lowered across the banking system as small banks are still grappling with limited liquidity, Thoi Bao Kinh Doanh newspaper reported.

The newspaper quoted finance-banking expert Nguyen Tri Hieu as saying that the government wants interest rates slashed to support the corporate sector, but only big banks with good liquidity could lower rates.

Profit margins of banks are getting narrower. While the profit margin is normally 3 percent in many countries, it is below 2.5 percent in Vietnam, or even 2 percent at some banking institutions.

If rates are cut, banks would have to cut deposit rates, something which is seen as unrealistic under the current circumstances. If savings rates are revised down, clients would go to banks with higher rates.

It is difficult to cut rates for now, Hieu said. But if after the Lunar New Year holiday in February, the central bank increases liquidity in the banking system and lowers base rates by 50 basis points on the interbank market, lending rates might drop, he added.

Regarding credit growth last year, the Vietnam Institute for Economic and Policy Research (VEPR) said the loan growth rate was still below the government’s target.

Credit growth was 16.96 percent by December 20, 2017, compared to 16.46 percent in the same period of 2016 and 17.02 percent in the same period of 2015. This growth rate was higher than growth in deposits, which was 14.5 percent.

Credit mainly went to industries and trade, at 78.4 percent, which partly explains strong growth in processing-manufacturing and services.

The National Financial Supervisory Commission’s 2017 economic development report showed credit represented 135 percent of gross domestic product (GDP) at the end of last year, well above other countries at similar development levels.

According to VERP, the central bank needs to monitor money supply growth as high inflation might recur.

The banking system had ample liquidity last year as the central bank bought $7.5 billion and raised nearly VND31 trillion from treasury bill issues.

Stable liquidity helped keep interbank market rates low last year. Though interest rates rose slightly in the final quarter, overnight and one-week rates were low, at 0.88 percent and 1.06 percent respectively. Rates for long-term deposits (12 months or longer) ranged from 6.4 percent to 7.2 percent.


Category: Finance, Vietnam

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