Interest rates on downward trajectory

Interest rates on downward trajectory

Persistently low volumes in collateralised open market operations lending, and the central bank’s steady net withdrawals, have underscored a surplus of VND liquidity in the banking system, bolstering market confidence and driving interbank rates to fresh lows.

Interest rate pressure can increase when the property market rebounds in a swift fashion Photo: Le Toan

Interbank interest rates have continued to decline in recent weeks, with last week seeing a steady downtrend, most notably at short-term tenors with the overnight rate plunged to 1.83 per cent from 3.7 per cent the previous week, while the one-week rate dropped from 3.9 per cent to 2.3 per cent.

Meanwhile, bank deposit rates on 25 June shown a clear trend as many banks adjust their mobilisation rates. The most striking point in this rate-adjustment cycle is the emergence of numerous banks listing yields above 6 per cent per annum on long-term tenors without any special minimum-balance requirements.

VPBank is applying a 6 per cent rate on long term from 12-month tenors. HDBank also lists 6 per cent for the 18-month term. VietABank keeps a lone 6 per cent rate for 36 months, while BAC A BANK offers 6 per cent for 18-36-month terms.

These are attractive levels in today’s market, especially because they are not tied to very large deposits. However, it should be noted that these deposit rates at joint-stock commercial banks are still at the lowest level of the past two years.

In an interest-rate-movement report released on 23 June, the State Bank of Vietnam (SBV) said the average lending rate of domestic commercial banks on both new and outstanding loans stands at 6.6-8.9 per cent per annum.

The average short-term VND lending rate for priority sectors is about 3.9 per cent, lower than the SBV’s 4 per cent ceiling.

“The average VND deposit rate of domestic commercial banks is 0.1-0.2 per cent per annum for non-term and sub-one-month funds; 3.2-4 per cent for under-six-month deposits; 4.5-5.5 per cent for 6-12-month deposits; 4.8-6 per cent for over-12-to-24-month deposits; and 6.9-7.1 per cent for terms above 24 months,” stated the SBV in the report.

Amid worries that lending rates might rise as credit recovers, analysts argue that system liquidity is currently plentiful and the SBV will continue to maintain its policy-rate stance to help banks keep both deposit and lending rates stable in the time ahead.

Nguyen The Minh, head of Research and Development for Retail Clients at Yuanta Securities Vietnam, stressed that interest rate pressure increases when the property market rebounds swiftly and funding demand returns; nonetheless, “overall rates can stay low in line with the government’s growth-support orientation.”

“On the interbank market, total weekly turnover rose 13.8 per cent week-on-week to about $92 billion. Overnight and one-week tenors recorded volumes of $88 billion, an increase of 12.3 per cent week-on-week and $3.36 billion, a rise of 62 per cent, respectively,” he noted.

“Collateralised lending against valuable papers has remained negligible, and the SBV has frequently been in net-drain mode in recent weeks. Deposit rates at commercial banks are still at a two-year low, with the sharpest declines on terms beyond 12 months,” he added.

During the 24 June session, the SBV made a noteworthy move by reopening bill tenders after nearly four months. Four of five participants were allotted 7-day bills worth $124 million at a 3.5 per cent yield.

In this context, the Global Markets and Economics Research team at UOB Singapore expected the SBV to keep its main policy rate steady, holding the refinancing rate at 4.50 per cent.

“Should domestic business and labour-market conditions deteriorate sharply, we see scope for the SBV to lower the refinancing rate in a single step to the pandemic low of 4 per cent, followed by an additional 50-basis-point cut to 3.5 per cent, provided the FX market stays stable and the US Fed proceeds with rate cuts. For now, our base case is that the SBV will leave policy rates unchanged,” the report stated.

In the latest rate-trend outlook released on 23 June, ABS Research said that with banking-system liquidity stable and inflationary pressure moderate, interest rates are expected to remain low or ease slightly in the near term.

“Given contained inflation, while global trade tensions and tariff uncertainty are rising, the SBV has room to loosen monetary policy. However, the central bank is also likely to steer policy cautiously, ensuring the domestic economy does not falter while guarding against long-term risks,” ABS Research analysts cautioned.

VIR