SBV to continue lowering deposit interest rates

As of October 29, 2014, the VND deposit rate ceiling will decrease from 6%/year to 5.5%/year for bank deposits with 1-6 month terms. Short-term lending rates in VND will reduce from 8%/year to 7%/year, while USD deposit rate will decline from 1%/year to 0.75%/year.

Ha said the central bank has applied flexible policy and used a synchronized set of monetary policy tools to create an open market and adjust cash inflow in accordance with the development of national economy, aimed at promoting liquidity for credit organizations and stabilizing monetary market and foreign exchange rate.

By October 24, the total means of payment rose by 11.85%, while mobilized capital saw an increase of 11.88% compared to a year earlier. Personal bank deposits in Vietnam dong (VND) grew up 13.17%, Ha said, adding this showed the rising consumer trust in the banking system.

She reported credit organizations successfully ensured their liquidity thanks to stable operation and low inter-bank interest rates in the domestic market.

After the SBV cut interest rates in March 2014, deposit rates in VND dropped by 1.0-1.5%/year compared to the end of last year, helping enterprises iron out their snags, stabilising the monetary market and keeping inflation under control.

By October 9, 2014, credit organizations’ outstanding loans in VND with interest rate of more than 15%/year accounted for 4.12% of the total outstanding loans in VND, down 6.3% compared to 2013’s figure.  Outstanding loans with interest rate of more than 13%/year made up 11.7%, down 19.72% from a year ago.

SBV Deputy Governor Nguyen Thi Hong said the central bank’s adjustments in the past 10 months are in line with policies of the whole economy.

The SBV is seeking measures to lower interest rates in support of enterprises, she said, adding  the central bank also offers preferential rates (below 10%/year) for a number of prioritized areas in both medium and long terms.

At present, deposit rates have declined by 1-1.5%, resulting in lower lending rates, Hong noted.

The gap between deposit rates and lending rates, which is hovering around 4-4.5%, is said to be at a high level. A representative from Vietinbank said its gap is only 2-2.5%, and continues dropping in the coming time.

Regarding medium and long term rates, representatives from commercial banks said they depend much on both Vietnam’s macro-economy and the global market.

Deputy Governor Hong said the SBV will help credit organizations ensure their liquidity and capital supply for the national economy.

The central bank will maintain its main policy rates, including re-financing interest rate, rediscount interest rate, and interest rate applicable to overnight loan in the inter-bank electronic payment.

She affirmed the State bank will strictly monitor the market and implement practical monetary tools to stabilise interest rates, foreign exchange rate, and the local monetary market.

The SBV targets achieving a credit growth rate of 12-14% in 2014, giving a helping hand to needy enterprises, and promoting the shift of credit structure towards prioritized fields following the Government’s guideline, Hong underscored.

HSBC said the SBV’s move is part of an effort to boost credit growth. While loan growth will likely accelerate towards year-end, we expect the expansion rate to be modest at 10%. Private consumption will unlikely rise sharply due to low consumer confidence, although a gradual upward trend is expected. GDP, thus, will primarily be boosted by Vietnam's star performer - trade.

The central bank is trying to do what it can to boost domestic demand, according to HSBC’s latest report. It is hoping that the reduction of the deposit cap will spur spending and cause banks to lower lending rates. “We believe the move is part of a seasonal boost to achieve the 12-14% credit goal as well as push up domestic demand. While we expect credit growth to accelerate, we forecast lending to expand by 10% this year and the next”, said HSBC.