Abundant liquidity, deposit interest rate continues to decline

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	Concerns about bank liquidity

Interest rate has been kept stable in line with macroeconomic developments. Photo: Internet

According to the update of SSI Securities Company (SSI Research) analysis center in its latest money market report, in July, the deposit interest rate continued to be reduced in some large joint-stock commercial banks. The decrease of 20-50 basis points of all terms made the deposit interest rate of this group close to the interest rate of the four major state-owned commercial banks.

Thus, in the first seven months of the year, the deposit interest rate has dropped 1-2% lower than the end of 2019 in most commercial banks.

On average, the deposit interest rate has decreased by 70-90 basis points for tenors of less than 12 months and decreased by about 100 basis points for terms over 1 year compared to the average of 2019.

According to information on banking activities of the State Bank (SBV), as of the end of July, VND deposit interest rate was common at 0.1-0.2%/year for deposits and with a term of less than 1 month; 3.7 - 4.25%/year for term deposits from 1 month to less than 6 months; 4.4- 6.4%/year for term deposits from 6 months to less than 12 months; for a term of 12 months or more at 6 - 7.3%/year.

According to the State Bank, the interest rate has been kept stable in accordance with macroeconomic developments, inflation and the money market.

Along with the decline of the deposit interest rate, on the interbank market, the abundant liquidity made the interbank interest rate level remain at a record low (0.15 to 0.3% per year for overnight terms, 1 week and 2 weeks).

According to Bao Viet Securities Company (BVSC), the liquidity of the banking system will continue to be abundant in August. In July, the State Bank did not have any significant capital injection/withdrawal through open market operations (OMO).

Therefore, BVSC expects credit in the second half of the year to improve compared to the first half of 2020. However, the level of improvement will not be too great, especially in the context of the recent outbreak of Covid-19 back in Vietnam, caused businesses to maintain a cautious view on prospects, thereby limiting production and business expansion.

In addition, the USD/VND exchange rate is falling to the State Bank's buying price range, thereby helping to improve foreign exchange reserves, so it is likely that a new amount of ‘dong’ (VND) will be injected into the banking system.

When deposit interest rates have decreased, are savings deposit channels attractive?

BVSC experts forecast that the State Bank will not focus on the target of further lowering the operating rate in the second half of the year. Instead, the State Bank will shift the target from trying to reduce interest rates to other targets such as: removing barriers that make it difficult for businesses to access capital after Covid-19, loosening credit room for banks, even re-financing public investment projects has a high spread.