Will Interest Rates Drop Further by Year-End?

As the year comes to an end, the currency market witnesses adjustments with a trend towards increasing deposit interest rates. In November alone, a series of banks simultaneously raised deposit interest rates, including MB Bank, Ocean Bank, HD Bank, and Bac A Bank.

Notably, some banks offered rates above 6% per annum for terms exceeding 12 months, such as ABBank (6.2% for 18 months), Bac A Bank (6.05% for 18 months), and HD Bank (6.1% for 18 months).

With deposit interest rates on the rise, lending rates are not expected to decrease, according to economic experts. Mr. Dinh Trong Thinh, an economist, shared his insights:

“Bank lending rates are likely to remain unchanged until the end of the year, and further reductions are unlikely due to the moderate interest rate pressure in Vietnam compared to previous years.”

Providing further explanation, Mr. Thinh mentioned that the recent consecutive interest rate cuts by the US have reduced the gap between VND and USD interest rates, thereby lessening the pressure on interest rates.

Additionally, the Government and the State Bank are committed to maintaining stability in the monetary market. They encourage commercial banks to optimize costs and facilitate business development by lowering lending rates and providing support for economic recovery and growth.

On the other hand, attracting deposits for lending has become more challenging, and it is inevitable for banks to raise deposit interest rates to meet their funding needs. Consequently, an increase in deposit rates will lead to higher lending rates.

However, under the guidance of the Government and the State Bank, banks will strive to maintain stability and refrain from raising lending rates until the end of the year. If possible, banks will still aim to reduce rates in certain priority sectors, but the extent of the reduction will be limited.

Sharing a similar viewpoint, Mr. Nguyen Quang Huy, CEO of the Faculty of Finance and Banking at Nguyen Trai University, stated that despite the State Bank’s calls for lowering lending rates to support businesses, the reality shows that the room for rate reduction is narrowing. As deposit interest rates rise, banks’ funding costs increase, making it challenging to lower lending rates.

While preferential interest rate programs continue to be implemented, they are primarily focused on priority sectors such as agriculture and exports, as well as small businesses. In contrast, high-risk industries like real estate and securities are unlikely to benefit from lower interest rates.

“From now until the end of the year, deposit interest rates may increase by 0.3 – 0.5% per annum for medium and long-term terms (6 – 12 months) to meet credit demands and ensure liquidity. Lending rates, on the other hand, are expected to remain at current levels or see only slight reductions in certain priority sectors. High-risk industries may experience a slight increase in interest rates,”

predicted Mr. Huy.

According to Mr. Huy, the rapid increase in non-performing loans at many banks is due to the challenges faced by businesses, particularly in real estate and manufacturing. To compensate, banks have to strengthen their capital mobilization to ensure sufficient resources for provisioning, thus avoiding any impact on the financial system.

The fourth quarter is typically a period when businesses increase their borrowing to boost production and prepare for the Tet holiday. To meet this surge in credit demand, banks need to increase deposits, which, in turn, puts upward pressure on deposit rates.

“Additionally, according to the Basel II and Basel III standards, banks must maintain a minimum capital adequacy ratio (CAR). Many banks have also reached the loan-to-deposit ratio (LDR) threshold, which compels them to prioritize increasing deposits to strengthen their liquidity,”

he added, explaining the inevitable rise in deposit interest rates during this period.

Economist Dr. Nguyen Tri Hieu offered his perspective, stating that the surge in capital demand towards the end of the year has compelled banks to raise deposit interest rates to attract more deposits and meet the escalating credit demand.

In the context of businesses requiring capital to maintain and expand their operations, an increase in lending rates will exert additional pressure on costs, impacting the economic recovery.

Previously, in response to a question raised during the National Assembly session, Governor of the State Bank of Vietnam, Nguyen Thi Hong, acknowledged the challenges in managing lending rates due to international market pressures and domestic circumstances. The fluctuations in the USD and the tensions in foreign currency supply and demand have led the State Bank to prioritize exchange rate stability. A significant reduction in lending rates could lead to an increase in the exchange rate, causing macroeconomic instability and concerns among foreign investors.

In the past, we have lowered interest rates considerably compared to other countries, and whether we continue to do so depends on domestic and global economic developments, liquidity, and the health of the banking system.

Nonetheless, the State Bank remains committed to instructing banks to reduce operating costs to maintain stable or slightly lower lending rates, thereby supporting businesses and the economy.

Prime Minister Pham Minh Chinh has issued a directive on further promoting the development of the domestic market and stimulating consumer demand. In this directive, the Prime Minister requested the Governor of the State Bank to continue instructing commercial banks to reduce costs, promote the application of digital technology, and lower borrowing rates for businesses and individuals to boost production and business activities in the last months of 2024 and the beginning of 2025.