Lower interbank rates support stocks, but year-end risks persist

Lower interbank rates support stocks, but year-end risks persist

Deposit rate movements are expected to remain an important indicator for stock market liquidity during the remainder of the year, as investors weigh equity returns against increasingly competitive yields available from bank deposits.

A customer opens a savings book at a bank transaction office. — Photo bnews.vn

Improved banking liquidity and lower interbank rates are supporting Việt Nam's stock market, though inflation, exchange rate and funding pressures could limit further monetary easing.

The money market became more favourable in July after a period of liquidity pressure.

According to a July macroeconomic report from TVS Research, interbank rates fell significantly as liquidity was supported by a sharp increase in State Treasury deposits, which reached VNĐ740 trillion (US$28.3 billion) by the end of the month.

The average overnight interbank rate dropped to around 4 per cent per year from 5.2 per cent in June, while rates for maturities ranging from one week to one month declined by 0.7-1.5 percentage points.

Deposit rates at commercial banks, meanwhile, remained broadly stable for six- to 12-month tenors.

On July 30, the State Bank of Vietnam (SBV) raised the deductible proportion of State Treasury term deposits when calculating the loan-to-deposit ratio from 20 per cent to 50 per cent.

TVS Research said the move could support short-term liquidity and contain upward pressure on interest rates in the second half of the year, as the economy requires sufficient funding to sustain its growth target.

For the stock market, lower interbank rates help ease concerns over banking system liquidity.

Stable short-term funding costs could delay pressure on commercial banks to raise deposit rates, providing support for investor sentiment and market liquidity.

Securities companies are particularly sensitive to these conditions, as stable interest rates provide a more favourable environment for margin lending and investors' use of leverage.

Banks could also benefit from reduced short-term funding cost pressure.

At a meeting with the central bank and credit institutions on August 13, Prime Minister Lê Minh Hưng called for continued attention on interest rates, credit growth, exchange rates and financial system safety.

The SBV has maintained its policy rates while strengthening liquidity provision to help credit institutions access lower-cost funding.

Credit institutions have also been asked to cut operating costs, stabilise interest rates and deliver substantive reductions in lending rates.

However, TVS Research cautioned that the fall in interbank rates would not necessarily signal the beginning of a new rate-cutting cycle.

Funding pressure remains as credit growth continues to outpace deposit growth.

Some commercial banks have had to issue bonds carrying interest rates of at least 8 per cent per year, around two percentage points higher than at the end of 2025, to supplement medium- and long-term funding.

TVS forecasts the average 12-month deposit rate at State-owned commercial banks at 5.2 per cent in 2026, up from 4.7 per cent last year, while the open market operation rate is expected to remain at 4.5 per cent.

For equities, the interest rate narrative could therefore shift from expectations of further easing towards rates remaining at a relatively elevated level.

Higher deposit rates could make bank savings more attractive, while increasing the discount rate applied to equity valuations.

External factors add another layer of pressure. The US Federal Reserve kept its policy rate at 3.5-3.75 per cent in late July.

TVS Research said the Fed could maintain rates or raise them by another 25 basis points this year, because of inflation risks associated with energy prices and tariff policies.

Together with Việt Nam's high trade deficit, this could continue to put pressure on the USD/VNĐ exchange rate during the third quarter.

Domestic inflation is also being closely watched. The consumer price index rose by 4.5 per cent year-on-year in July, while TVS Research forecasts third quarter inflation at around 4.5-4.7 per cent.

Oil prices could add further pressure if tensions in the Middle East persist.

Overall, the stock market is therefore facing contrasting monetary signals.

Improved banking liquidity and lower interbank rates are supportive of short-term capital flows, while funding demand, inflation and exchange rate pressures restrict the scope for deeper rate reductions.

Deposit rate movements are expected to remain an important indicator for stock market liquidity during the remainder of the year, as investors weigh equity returns against increasingly competitive yields available from bank deposits. 

Bizhub