The unprecedented phenomenon appears in the interest rate market

22-Oct-2020 Intellasia | Dau tu Online | 6:02 AM Print This Post

According to the State Bank of Vietnam (SBV), nearly 70 percent of turnover on the interbank market was on overnight loans. However, the whole month’s overnight interest rate was only around 0.1%, the lowest in history. Despite the low interest rates, banks’ demand for loans was still deficient, sometimes just over 30 trillion dong.

The overnight interest rate on the Vietnam interbank market was approximately the same as that in the US (currently 0.8%). Even in October, there was a time when the overnight lending rate in Vietnam was lower than in the US market. This was an unprecedented phenomenon in Vietnam’s interest rate market, proving that banks were very redundant, said Phan Dung Khanh.

Nguyen Thi Phuong, deputy general director of Vietnam Bank for Agriculture and Rural Development (Agribank), also affirmed that the slow growth of credit while the mobilised capital still flowing into the bank created a large amount of capital surplus. Meanwhile, the investment in lending in market two was ineffective due to the record low interest rates. Many banks had excess money, and there was no need to borrow from each other.

In the last five years, the interest rate level had changed dramatically. At the beginning of 2016, the market’s three-month term deposit interest rate was at five percent per year, which had then decreased to 3.1 percent to 3.3 percent per year. The one-year deposit rates at major banks also dropped to 5.8 percent per year compared to seven percent per year five years ago.

In the report just sent to the National Assembly, SBV affirmed that since 2016, SBV had adjusted to reduce the interest rates by two percent to 2.5 percent per year, reducing the ceiling interest rate by 0.8 percent to 1.5 percent per year for the deposit of terms less than six months, declined ceiling interest rates for priority areas by 2.5 percent per year.

Only in the first nine months of this year, SBV had synchronously reduced interest rates three times with a relatively strong scale. Compared to other countries in the region, Vietnam’s reduction in executive interest rates was one of the strongest. Accordingly, the Philippines decreased by 1.75%; Thailand decreased by 0.75%; Malaysia decreased by 1.25%; Indonesia decreased by one percent; India decreased by 1.15%; China decreased by 0.3%. The interest rate level tended to decrease. The maximum lending interest rate for priority areas was currently 4.5 percent per year, down about 2.5 percent per year compared to 2016.

Cash flow was steered into priority areas

Not only were capital sources were significantly cheaper, but credit flows were also being directed into priority addresses according to the government’s direction, capital in hot areas was gradually being controlled. The deputy Governor of SBV, Dao Minh Tu, said that as of September 30, 2020, the credit balance of the whole economy reached 8.69 quadrillion dong, an increase of 6.09 percent compared to the end of 2019 (the same period in 2019 with 9.4%). In particular, credit for the priority sectors had profitable growth.

According to the report on the business environment in 2020 published by the World Bank Group (WB), Vietnam’s Credit Access Index gained by five points and seven ranks compared to the previous report, ranking the second among Asean countries (after Brunei), standing 25 out of 190 economies.

Statistics of SBV showed that, since 2016, credit growth had been positive since the first months of the year and had an average annual growth rate of over 16%. Credit structure had a positive adjustment, in which credit focused on areas that contribute positively to economic growth such as production business, priority sectors. The credit with potential risk areas was strictly controlled.

As of the end of September 2020, outstanding loans in the agricultural and rural sectors were estimated at 2.12 quadrillion dong with 14.17 million customers, accounting for 24.67 percent of the economy’s total credit balance, increasing by five percent compared to the end of 2019. As of the end of August 2020, industrial credit increased by 3.24%, accounting for 18.75 percent of the economy’s total outstanding loans. Similarly, the construction credit increased by 7.13%, accounting for 9.99 percent of the economic sector’s total outstanding loans. The credit for the wholesale, retail, repair of cars, motorbikes and other motor vehicles increased by nearly five percent, accounting for 20.52 percent of the total outstanding loans.

In the first months of the year, due to the impact of the Covid-19 epidemic, the demand for credit was low, so credit growth was lower than in the previous years but also recovering positively. SBV was directing credit institutions to focus on pouring capital into production areas, especially priority areas. SBV also continuously considered adjusting the credit growth target in 2020 with credit institutions meeting well the prudential ratios and expanding credit but not increasing the loan and mobilising interest rate.

 

Category: Finance, Vietnam

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