Race to lower deposit interest rates to continue until year end

They attributed it to sluggish credit growth and challenges that lending continues to face, and loose monetary policy, leading to a surplus of liquidity.

Banks have been steadily reducing deposit interest rates since April and they have now gone below 5.5% per year, even lower than during the COVID-19 pandemic period.

A few days ago, State giant Vietcombank continued to reduce its rates, which have gone to the lowest in years.

On October 7, its highest rate was 5.3%, lower than the pandemic period, when it had been 5.8%.

Three other State-owned banks, Agribank, BIDV and VietinBank, have capped the rate at 5.5%.

Nguyen Tri Hieu, a banking expert, said deposit interest rates would continue to decrease this year though not to the same extent as before.

Dr Can Van Luc, chief economist of BIDV, said policy interest rates should remain stable since further lowering is unnecessary.

Besides, reducing them further could put pressure on the exchange rate, he pointed out.

In a recent report the World Bank claimed there was not much room left for Vietnam to loosen monetary policy.

Credit demand continues to be low though interest rates have plummeted, and further cuts are unlikely to promote credit growth, it claimed further.

Dr Tran Hung Son, a lecturer at HCM City National University’s University of Economics and Law, warned that reducing interest rates too quickly would widen the difference between domestic and international interest rates, especially dollar-denominated ones.

As the gap widens, pressure on the foreign exchange rate would be inevitable, he added.

Peter Verhoeven, chairman of Prometheus Asia SDN BHD, said while Vietnam is loosening its monetary policy unlike the US or the EU, the move is appropriate since it has controlled inflation well.

The steady deposit rate cuts are expected to further bring down lending rates since the SBV has been exhorting lenders for long to reduce them to support businesses.

Industry experts forecast a bleak outlook for the banking industry this year due to stagnant credit growth and falling profits, with smaller players in particular expected to face a sharp drop in profit growth.