The lending interest rate may be lifted next year

One of the reasons that commercial banks have raised deposit interest rates is the new regulation set by the State Bank. 

From 2019, banks can only use 40 percent of their short-term capital for long-term lending, instead of 45 percent as previously stipulated.      

    
To mobilize medium- and long-term capital, banks will have to offer higher interest rates. In general, Vietnamese prefer short-term deposits to long-term because of the fear about uncertainties.

The base deposit interest rate is predicted to rise by 0.75 percent which would cause the lending interest rate to increase proportionally.

VN Direct Securities commented that the State Bank of Vietnam (SBV) is tightening monetary policy, and basic interest rates are expected to rise in 2019. SBV has also issued Instruction No 04 on tightening control over credit growth in an effort to prevent risks.

VN Direct Securities predicted that the re-discount and re-financing interest rates would rise to 4.75 percent and 6.75 percent per annum, respectively, in 2019.

Some commercial banks have begun raising the deposit interest rates to 8-8.6 percent per annum.

VP Bank has just raised the interest rates for long-term Vietnam dong deposits by 0.7 percentage points at maximum. 

The deposit interest rates offered to depositors under the Phat Loc Thinh Vuong program are now 8.5 percent for 13-month term deposit and 8.6 percent for 18-month and longer terms. Meanwhile, the rates for usual deposits are 7.6 percent and 7.8 percent, respectively.

Nguyen Hoang Minh, deputy director of SBV HCMC branch, said commercial banks are now intensifying the mobilization of idle capital to satisfy the high capital demand from businesses in the year-end production season, and to prepare capital for next year when new credit limits are set.

Questions have been raised about whether SBV would think of removing the cap for interest rates on deposits of less than six months.

Governor of the State Bank Le Minh Hung said though the capital market has developed, it still cannot satisfy the capital demand of the national economy. 

The banking system remains the major source of capital for enterprises. Therefore, selectively applying administrative measures is a must.

Nguyen Tri Hieu, a banking expert, said that 80 percent of loans for enterprises come from commercial banks, while only 20 percent are from the stock market. This explains why the credit growth rate in Vietnam is always high, at 15-16 percent per annum.

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