Expectations of stable interest rates

There are not much room for the bank interest rates to fall down. Source: The Internet.

No change

The report on the economic situation in the first 5 months of 2017 of the National Financial Supervisory Commission said that in the market 1 (market mobilization of capital from the population, businesses), to the end of May, only 1-month average and long-term interest increased slightly by 0.01-0.02% (1-month average interest rate was 5%/year, average rate of 12-36 months was 7.09% %/year). Meanwhile, the normal lending rates are little changed from the previous month. In the normal business sector, lending rates are at 6.8-9% per year for short term, 9.3-10.5% for the medium and long term.

Recently, State Bank Deputy Governor Nguyen Thi Hong said to reporters that from the beginning of the year, the State Bank of Vietnam, as well as many economists, said that the interest rate stability and striving to reduce the lending interest rate is also a difficult and challenging task. Therefore, the SBV instructed credit institutions to offer solutions to stabilize interest rates. In addition, in the daily management of liquidity, SBV has adjusted the interest rate, trading volume, and term in the interbank market to keep the interest rate stable.

Thanks to such stability, the same direction of accelerating growth from the government, banking credit has seen the highest increase in the past eight years, reaching 6.53% (according to SBV). However, credit growth is not a "joy" for economic experts, as the current devaluation of the credit per GDP of Vietnam has tended to increase continuously from quarter IV/2015 to present, QI/2017 was at 11%. This is the second highest level in the period 2009-2017, just at the 13% level of the first quarter of 2011 (according to a report by the National Financial Supervisory Commission).

Much of pressure

Although the stabilization of interest rates has met somewhat the expectations of enterprises, however, this issue is facing many challenges from the domestic and foreign economies. So, the question is if the target of reducing the interest rate of the banking industry is to come true, or continue to stop at the "strive" level? In guiding the direction and solution of monetary policy in the coming time, the SBV aims to manage interest rates in line with macroeconomic developments, inflation, and the monetary market in order to stabilize interest rates. The State Bank of Vietnam will continue to instruct credit institutions to save costs and improve business efficiency in order to stabilize deposit rates and conditions to reduce lending rates in order to share difficulties with borrowers but still sustain the financial security in operation.

According to financial - banking expert Dr. Nguyen Tri Hieu, interest rates from now until the end of the year not only difficult to reduce but also likely to increase. The first reason came from efforts to hold the Government's economic growth target of 6.7%, so that the remaining quarters of the year must grow at an average rate of over 7%, then push the amount of money into circulation. This can put pressure on inflation, and rising inflation will push up interest rates. Moreover, the NIM index (the difference between interest income and average expense interest of banks) of Vietnamese banks is low, so the bank can hardly compensate for the target of reducing the interest rate.

In particular, the crucial problem of interest rate reduction is in government bonds, the interest rate of this type of bonds is now 5-7%, with high liquidity and risk is almost zero. Experts say that between government interest rates and bank interest rates, economic sectors will choose the government interest rate because of high-interest rates and zero risks. Therefore, banks are unlikely to accept low deposit rates.

It can be seen that from now until the end of the year, the pressure on the interest rate level is still high, not to mention the need for capital for the economy will increase to serve production and business at the end of the year. Therefore, finding solutions to open source of capital, supporting interest rate reduction is necessary for the management agencies. Dr. Nguyen Tri Hieu said that the SBV can cut interest rates by buying OMO bonds, buying government bonds to push large amounts of money into circulation, helping to reduce lending rates. However, this is only a theoretical solution, but the reality to do is very difficult for the State Bank.

However, the good news is that the exchange rate pressures are minimized as the USD has strengthened against the beginning of the year; foreign capital inflows are returning more in the bond and stock markets etc. Particularly, the SBV and the Government's aggressive actions in dealing with bad debts have also been supporting a great deal for the purpose of stabilizing and reducing interest rates. Accordingly, the SBV has reported to the National Assembly on the bill on amending and supplementing a number of articles of the Law on Credit Institutions, supplementing and amending regulations related to competence, the way of restructuring credit institutions, measures to support the recovery of weak credit institutions. In addition, the SBV has submitted to the National Assembly a resolution on dealing with bad debts. If passed soon, the resolution of the National Assembly will create conditions for thoroughly handling difficulties in the current legal basis related to the handling of bad debts and security assets and debts of credit institutions, creating a synchronous, unity, effective and feasible mechanism for bad debts. This will release large amounts of capital that are deposited in bad debts as well as releasing unmanaged collateral, wasting social resources and helping credit institutions expand their credit for the economy, at the same time, reduced operating costs to be able to further reduce lending rates.

Although there are still mixed opinions about the policy story to stabilize interest rates, although enterprises always eagerly want to reduce interest rates, under the objective and subjective impact, to reduce interest rates, there is a need to be based on careful calculations to avoid affecting the entire financial system.