Rate reductions deemed well-timed
Rate reductions deemed well-timed
The latest initiative from Vietnam’s central bank to introduce a round of interest rate reductions within a condensed timeframe is regarded as a favourable stride aimed at invigorating economic expansion.
The State Bank of Vietnam (SBV) last week announced additional adjustments to a series of key interest rates, effective from May 25. This move marks the third round of interest rate decreases within a span of less than three months, signifying its resolute efforts in lowering the interest rate landscape, aimed at providing vital support to businesses and stimulating overall economic growth.
The recent decision to lower interest rates has garnered praise from industry experts and leaders who believe it to be an appropriate and well-timed move.
Le Quang Vinh, deputy CEO of Vietcombank, deemed it a sound decision that is well-aligned with the current economic landscape. “Looking ahead, we anticipate that lending rates will correspondingly decrease as deposit interest rates uniformly decline,” Vinh said.
Pham Nhu Anh, CEO of MB, recognises the difficulties faced by the market in absorbing capital and the prevailing economic challenges but added that the reduction will alleviate many challenges for customers and banks in the near future.
“In response, MB is poised to introduce new policies aimed at supporting customers during this period. We have witnessed a credit growth of approximately 6.5 per cent since the beginning of the year. With the new, lower interest rate framework, we are optimistic that credit growth will be even stronger in the remaining months, projecting a growth rate of 9 per cent by the end of June,” he said.
Nguyen Dinh Tung, CEO of OCB, disclosed that the SBV set forth stringent requirements for reducing lending rates. He noted that the rate reduction pertains specifically to existing customers, rather than new ones. Notably, current lending practices by various banks already offer substantially lower interest rates to new customers.
Director of Institutional Customer Securities Services at SSI Securities, Nguyen Anh Duc, also noted that the rate cut helps lower capital costs for businesses, thereby improving their profitability.
“Increased consumer demand and overall economic improvement also enhance the prospects and valuations of companies. Additionally, the influx of capital into the market and improved investor sentiment are notable benefits,” he said.
Portfolio manager and board member of Finnish fund PYN Elite, Petri Deryung, anticipates an upswing in Vietnam’s GDP growth for the remainder of 2023. “This optimistic outlook is driven by the prevailing trend of declining interest rates, which is expected to stimulate economic expansion,” he said.
According to Deryung, the Vietnamese market presently offers enticing stock prices, making it an attractive prospect for investors. However, the key concern lies in determining when improved liquidity conditions and the reduced interest rates will effectively lure back a significant influx of investors.
Mirae Asset Securities, on the other hand, evaluates that the recent interest rate cut will place a favourable impact on industries burdened with high levels of short-term and long-term debt. Based on data from 2022, the real estate, steel, food, aquaculture, and construction sectors, all of which presently bear significant debt burdens, are primed to reap immediate benefits from the strategic manoeuvre orchestrated by the SBV, Mirae added.
Credit institutions are not obligated to enforce loan repayments when they fall due, while still ensuring the repayment of deposits. Consequently, this initiative diminishes loan volumes and slows down capital circulation within the economy.
Additionally, the banking system is presently undergoing restructuring and grappling with the resolution of non-performing loans, in addition to upgrading governance standards in alignment with international practices. Experts also raise their concerns that some smaller-scale commercial banks are maintaining elevated deposit rates to retain customers, thereby intensifying the challenge of reducing lending rates.
