Lending rates maintaining stability through year-end

Lending rates maintaining stability through year-end

Lending rates have remained relatively stable, but room for further cuts appears limited amid persistent exchange rate and inflation pressures.

Vietnam has entered the peak business season of the final quarter, when companies ramp up production and credit demand rises sharply, a period that typically sees lending accelerate to meet annual growth targets. However, financial experts said that further rate cuts in the short term are unlikely, given mounting pressures from exchange rates, inflation, and credit growth.

Only a few banks offer 12-month deposit rates of around 6 per cent per year, while the prevailing rate is between 4.5 and 5.5 per cent. State-owned banks list 12-month deposit rates at roughly 4.6-4.8 per cent.

For six-month tenors, the average rate stands between 3 and 5 per cent. Among these, state-owned lenders and a few others offer rates around 3 per cent, while most pay upwards of 4 per cent, peaking at 5 per cent.

Explaining why monetary policy space for growth stimulus has narrowed, Dr. Pham The Anh, head of the Economics Faculty at the National Economics University, pointed to structural constraints.

“The credit-to-GDP ratio is above 140 per cent, while the money supply-to-GDP ratio exceeds 160 per cent. The economy is heavily reliant on credit and liquidity. Moreover, the spread between deposit rates and actual inflation is virtually zero, making it difficult for banks to mobilise large volumes of long-term funds. People still prefer short-term deposits while waiting for investment opportunities elsewhere,” The Anh said.

“At the same time, the interest rate differential between Vietnam and the US is negative. The US government’s lending rates are 5-6 per cent per year, compared to Vietnam’s 3-4 per cent, making the domestic market less attractive and increasing the risk of capital outflows,” he added.

Dinh Duc Quang, country head of Global Markets at UOB Vietnam, said the likelihood of sharp cuts from now until year-end remains low.

“Lowering interest rates further in the short term is not easy, as monetary policy must strike a balance between depositors and borrowers while also accounting for exchange rate pressures. Although the VND/USD rate has not fluctuated dramatically over the past five years, the 3.4 per cent increase since the beginning of this year is still a key factor forcing the State Bank of Vietnam (SBV) to act cautiously,” Quang noted.

Policy easing space could expand in the coming months, as the US Federal Reserve is expected to cut rates twice more in October and December, bringing the federal funds rate down to around 3.75 per cent.

“Additional Fed cuts in 2026 could create favourable conditions for Vietnam to lower VND interest rates without triggering significant exchange rate pressures. However, despite easing pressure after the Fed’s cuts, end-year exchange rate risks remain. Therefore, expecting substantial rate reductions while exchange rates are still under strain would be unrealistic,” said Quang.

According to UOB’s forecast, the SBV is unlikely to immediately cut rates, despite growth pressures of over 8 per cent this year. “Lending rates are expected to remain broadly stable at current levels,” he added.

Over the longer term, Quang said the bigger challenge lies in reducing corporate dependence on bank credit for medium- and long-term financing, which is a structural issue that weighs heavily on banking and rates.

“Businesses seeking to expand production cannot rely solely on bank credit. If not addressed, they will continue to exert upward pressure on rates. A mechanism to share this burden with the broader financial market is essential. This is the sustainable, long-term solution to support businesses and the economy,” he said.

Dr. Nguyen Duc Do, deputy director of the Institute of Financial Economics at the Academy of Finance, also believes that even if the Fed cuts rates, domestic interest rates are unlikely to fall further.

“Credit demand this year is higher due to an ambitious credit growth target and rising borrowing needs. Moreover, the exchange rate remains under pressure, so maintaining current interest rates is already a positive outcome,” Do explained.

“Keeping rates steady or allowing slight increases is appropriate. When deposit rates are difficult to lower further, there is limited room to cut lending rates. The main pressure lies in tenors of six months or more, while short-term rates remain supported by the interbank market,” he added.

Nguyen Phi Lan, director general of the SBV’s Forecasting and Statistics at the Monetary and Financial Stabilisation Department, said that the central bank has already eased monetary policy this year.

“By cutting policy rates and urging institutions to reduce costs and accelerate a digital overhaul, lending rates have declined significantly,” Lan said. “The SBV will closely monitor economic developments to adjust rates in line with market trends, inflation, and policy objectives, while pushing credit institutions to cut costs, thereby creating conditions for further lending rate reductions.”

VIR