The Prime Minister has recently issued Official Dispatch No. 122/CD-TTg to the Governor of the State Bank of Vietnam (SBV) regarding enhanced measures for credit management in 2024. The dispatch emphasizes the need to focus on reducing lending rates by cutting costs, simplifying administrative procedures, and embracing digital transformation and digitalization.
No aggressive competition in deposit rates expected
Following the Prime Minister’s dispatch, the SBV issued Official Letter No. 9774, instructing credit institutions and SBV branches in provinces and cities to stabilize deposit rates and reduce lending rates. Credit institutions are also urged to decisively and effectively implement measures to simplify loan procedures, enhance the application of information technology, and integrate digital transformation into the loan process.
According to Nguoi Lao Dong reporters, the trend of increasing deposit rates continued in November 2024, but the increment was not significant.
SeABank is the latest addition to the list of banks adjusting their deposit interest rates, offering higher rates for certain tenors. For deposits with a tenor of 1-2 months, the interest rate stands at 3.4%/year, while for 3-5 months, it is 4.1%/year. The highest interest rate at this bank is 5.45% for a tenor of 18 months.
In the last months of 2024, there is unlikely to be a competitive race to increase deposit interest rates. Photo: TAN THANH
Currently, several commercial banks offer deposit rates above 6%/year.
Mr. Truong Dac Nguyen, Head of Analysis at WiGroup Data Solutions Company, explained that towards the end of the year, businesses tend to ramp up production and commercial activities, leading to an increased demand for capital. This, in turn, prompts banks to compete for capital by offering higher deposit rates.
“This phenomenon is not unique to this year but has been observed in previous years as well, indicating a seasonal pattern. Nonetheless, interest rates remain at a low level, and this adjustment phase will not last long enough to reverse the overall interest rate trend,” Mr. Nguyen added.
Economist Dr. Dinh The Hien shared that the deposit interest rate has been maintained at a reasonable level of 4.5-5%/year, offering a safe investment channel with a positive real interest rate when compared to inflation. He noted that the recent increase in deposit rates is mainly observed in medium and small-sized banks and could be attributed to their specific capital needs rather than a market-wide trend.
“Therefore, we are unlikely to witness a competitive race to increase deposit rates, especially after the Government and the SBV intervened to urge credit institutions to maintain low-interest rates, given the current low inflationary environment,” Dr. Dinh The Hien stated.
Market needs an additional VND 670 trillion in credit
According to SBV statistics, the total credit balance of the system as of the end of September 2024 reached VND 14.7 million billion, significantly surpassing the total capital mobilization of VND 14.5 million billion. This development has put pressure on liquidity, forcing major banks to adjust their interest rate policies to meet the economy’s escalating capital demands.
As of the end of October 2024, the credit growth of the banking system towards the economy exceeded 10.08%. Based on the total credit balance of over VND 14.561 million billion as of the end of August 2024, an additional VND 670 trillion in credit needs to be injected into the market in the remaining two months to achieve the targeted credit growth rate of 15% for the year.
Amid the ample lending limit, the Bank for Investment and Development of Vietnam (BIDV) continues to promote the implementation of credit packages with a total scale of over VND 19 trillion.
Specifically, BIDV has allocated VND 3 trillion and USD 50 million to provide preferential package loans to textile and garment enterprises with new investment projects or projects for the renovation and upgrade of facilities, machinery, and equipment towards energy efficiency, environmental protection, or export orders that meet the green criteria of markets such as Europe, the US, and Japan.
For enterprises investing in clean water projects, BIDV offers a dedicated credit package of VND 5 trillion and commits to reducing the interest rate by up to 1.5 percentage points compared to the bank’s floor lending rate.
Lending rates to be competitive
According to a leader of VietinBank, since the beginning of November 2024, the robust implementation of public investment projects has increased the capital demands of enterprises involved in these projects, who are largely indifferent to borrowing costs as lending rates have already reached rock bottom.
Nevertheless, banks can still offer reduced interest rates to efficient businesses. As banks have not yet fully utilized their credit limits, there is intense competition among them to expand their outstanding loans.
Commenting on this, Dr. Dinh The Hien stated that lending rates are currently subject to intense competition among banks vying for customers, especially quality ones. Therefore, it is unlikely that lending rates will surge unanimously towards the year’s end.
“Many enterprises are in good health and have stable operations, borrowing at an interest rate of only 7%/year. In contrast, businesses with less robust performance will face higher borrowing costs. This competitive dynamic requires borrowers to meet certain conditions and not solely rely on pressure on banks to reduce interest rates,” Dr. Hien analyzed.
The director of an agricultural product trading company in the Mekong Delta shared that he had never seen such low lending rates for the agricultural export sector. However, his company is still hesitant to borrow due to concerns about efficiency and prefers to “lie low” to preserve capital. He added that his company, with a good credit history, enjoys a short-term VND lending rate of only 2.7%/year and a USD lending rate of 3.2%/year. “We have never been so aggressively pursued by banks to meet their year-end credit targets. Businesses that complain about borrowing difficulties may lack collateral or have risky loan proposals,” the director remarked.
Banks are making profits
At Agribank, the average deposit interest rate is currently 3.64%/year, and when combined with related costs, the average capital mobilization cost reaches 5.12%/year. In contrast, the average lending rate is 6.8%/year, resulting in a relatively low average spread of 1.68%/year.
Similarly, at ACB, the average lending rate is 6.67%/year, with an average spread of 2.56%/year, translating to an average deposit rate of 4.11%/year.
A senior leader of VietinBank shared that except for Agribank, which is 100% state-owned, commercial banks with a spread of 2% or higher between lending rates and capital mobilization costs are already profitable.
Mr. Lam Ngoc Tuan, Director of Tuan Ngoc Agricultural Cooperative (Ho Chi Minh City):
Need for loan term extension and further interest rate reduction
Tuan Ngoc Agricultural Cooperative is currently borrowing commercially at an interest rate of 10% and using the assets of its members as collateral. The cooperative has a need to build additional post-harvest processing and preservation facilities but cannot access capital due to a lack of collateral. As a result, the cooperative can only “survive” and cannot expand.
Although the cooperative has access to preferential loans from the Farmer Support Fund under the Ho Chi Minh City Farmers Association, the amount is insufficient for their needs.
Following the COVID-19 pandemic, cooperatives in Ho Chi Minh City have faced significant challenges and desperately need extended support for recovery, such as loan term extensions and reduced interest rates.
Mr. Lu Nguyen Xuan Vu, Chairman of Saigon Entrepreneurs Club, General Director of Xuan Nguyen Group Joint Stock Company:
Constant need for additional capital
The fourth quarter is a period when enterprises have a high demand for purchasing goods, along with salary and bonus payments and various settlements. Consequently, most enterprises, especially small and medium-sized enterprises and private enterprises, require additional capital.
Recently, many banks have proactively reduced interest rates and introduced attractive loan packages for enterprises, albeit with a cautious lending approach. The general lending rate for working capital loans is 6-8%, reflecting a downward adjustment compared to previous levels. However, as economic growth remains sluggish, enterprises find it challenging to predict market demand and are reluctant to invest heavily in production, opting instead for a more conservative approach to avoid inventory buildup and ensure sufficient cash flow to repay bank loans.
Ngoc Anh – Thanh Nhan reported
