Year-end interest rates: Hard to fall

Interest rates from now until early 2018 can hardly be reduced due to demand and expectations. Picture: ST.

Stable market

The macroeconomic report for 11 months of 2017 reported that the mobilizing interest rate in the market increased slightly compared to the previous month, when a number of large commercial banks with the proportion of deposits implemented the big interest rate adjustment for short terms. According to BIDV's new interest rate schedule, 1-month and 2-month term deposits will enjoy interest rates of 4.8% per year, increased by 0.5% compared to the previous rates.

The 3-month term deposit was raised from 4.8% to 5.2%/year - equivalent to 6 month term. At VietinBank, the deposit interest rate from 6 to less than 9 months increased from 5.5% and 5.7% to 5.8%/year; interest rates from 12 months to less than 13 months increased from 6.5% to 6.8% per year. At Sacombank, deposit interest rates for 2 month and 6 month deposits rose by 0.2%, to 5.3%/year and 6.2%/ year, respectively. 9 month term interest rates increased by 0.4% to 6.4% per year; the 12-month term also increased slightly by 0.1%, to 6.9% per year. So, as of November, the average interest rates on mobilized 1 month term is 4.85%, 6 months at 5.72%, 12 months at 6.8%, and 12-36 months at 7.07% (increased from 0.04 to 0.15 percentage points). Although deposit rates have increased slightly in some commercial banks, lending rates are quite stable compared to last month. At present, lending interest rate in five priority sectors is 6.5%, especially with commercial banks at 6%, and in the business sector the common interest rate is at 9.3 -11% for term of 6 months or more. As a result, credit growth in the first 11 months of 2017 is 15.3% compared to the beginning of the year (the same period in 2016 increased 15.6% compared with the beginning of the year).

Thanks to this stability, according to the report of the National Financial Supervisory Commission, liquidity of the banking system is generally stable. The liquidity of the system was greatly supported by the State Bank of Vietnam (SBV) that bought a large amount of foreign currency and the net supply of nearly VND 124 trillion from the beginning of the year. The average LDR of the system was about 86.9%, slightly up from 85.6% at the end of 2016.

“Narrow door” for interest rates

Market signals are very positive, helping people and business community to expect an interest rate reduction, especially the reduction of lending interest rate at the end of the year under the direction of the Government. But experts say that the indicators are in control, so with the market it is hard to cut interest rates, and it will remain stable from now until early 2018.

In this regard, according to a financial expert - banker, Dr. Can Van Luc, there are 4 reasons that makes for the banking system difficult to reduce interest rates.

Firstly, the inflation of this year is well controlled, but if not careful during the next year it may increase in the context of the money supply being quite large and with the Government agreeing to increase prices of some kinds of basic goods, including electricity. According to research by Mr. Luc, the world commodity prices in 2017 are relatively stable, but 2018 may increase due to demand and the good recovery of the world economy.

Secondly, is the bad debt problem. Although the Resolution No. 42 of the National Assembly on piloting bad debt handling of credit institutions to help bad debt to be dealt with faster, however, this process still wastes a lot of time; if bad debt can not be handled faster and more efficiently it will be difficult to reduce.

Thirdly, the gap between Vietnam's input and output is relatively low compared to the region. Only 2.2-2.4%, while in China it is about 3%, the Philippines and Indonesia about 2.8, -3%. This means that Vietnam has the same risk but the difference is lower.

Lastly, it’s due to demand for capital, especially the demand and growth of credit at 18-20%, as requested by the Government. In addition, banks must meet legal requirements, such as Circular No. 06 of the State Bank of Vietnam on reducing short-term capital for medium and long-term loans, which also causes banks to raise capital mobilization at the end of the year. This means interest rates cannot fall, leading to interest rates cannot be reduced.

Obiviously, the “door” to lower interest rates for businesses is still quite narrow so it is necessary to add more favorable macroeconomic conditions, in addition to the management of reasonable monetary policy from the regulator. But it is remarkable that the current management has helped the market avoid the “big waves” and maintained stability. So the most necessary step is to reduce procedures, shorten the distance between banks - businesses to interest at any rate, it can promote the efficiency of capital supply.