Are Mid-Year Bank Interest Rates Rising or Falling?

Economist and Associate Professor Dr. Dinh Trong Thinh predicts that deposit interest rates will increase in the second half of 2024, while lending rates will remain stable. However, Mr. Thinh believes that the upward trend in deposit interest rates will be gradual. Increasing deposit interest rates reflect the recovery of the economy and are necessary to attract idle cash flow from the population to continue generating credit for production and business.

The inevitable consequence of this is that lending rates may also increase, but due to the lag between deposits and loans, lending rates will not rise this year.

“The State Bank has been implementing a stable monetary policy, encouraging commercial banks to optimize and reduce costs to offer the most favorable lending rates for people and businesses. Under this direction, lending rates are expected to continue to decrease or, at the very least, remain stable in the latter part of this year,” said Mr. Thinh.

Citing data from the State Bank, the expert added that lending rates have decreased by 0.99% since the beginning of the year, a positive signal indicating that credit is flowing into production and business as intended by the State Bank to optimize the system and minimize costs to serve businesses.

Meanwhile, Dr. Nguyen Tri Hieu predicts that the average lending rate could increase by at least 0.5% in the second half of 2024, while the deposit rate could rise by about 1%.

“Whenever lending activities are more robust, lending rates will increase, following the law of supply and demand. Banks also operate according to market demands. An increase in credit market demand means higher risks. When the demand for loans is high, lending rates will rise. Moreover, credit activities in the second half of 2024 are expected to be more vibrant,” he said.

Another factor is the input interest rate, or deposit rate, which banks increase to attract funds for lending purposes. When the deposit rate goes up, the output rate, or lending rate, will also increase as banks maintain a profit margin of 3-4% between deposits and loans.

According to Mr. Hieu, deposit rates have been on the rise in recent months, with more and more banks offering higher interest rates. This increase in deposit rates could be due to banks preparing to lend more in the latter half of 2024 or the rise in non-performing loans.

“The increase in non-performing loans has caused a disruption in the cash flow returning to banks, so they need to raise funds to continue lending and create a cash flow to repay old depositors or pay interest to old depositors. Therefore, banks have to increase deposit rates,” he analyzed.

Experts from Dragon Capital Securities Company (VDSC) predict that an increase in deposit rates is a suitable scenario based on the fluctuations in exchange rate expectations and interest rate policies. In reality, since the beginning of the second quarter, VND interest rates have been on the rise, and by mid-year, VND deposit rates from banks had increased by 0.5% to 1% for various terms. Interbank money market rates have also increased, and market intervention rates, such as the open market operation (OMO) rate and the rate for issuing bills, have been adjusted higher.

However, the current deposit rates are still lower than in the pre-pandemic years. VDSC forecasts that VND interest rates in the last six months of the year may continue to rise slightly by 0.25% to 0.75%.