return icon

Why are interest rates picking up?

The first half of the year saw interest rates edging up 0.5-1 percentage point against the end of last year. Liquidity in the banking system was blamed for interest rate hikes.

 The first-half demand for credit grew a staggering 9.35 % against the beginning of the year while the rise in deposits was nearly 4.51%, less than half of the credit growth rate.

The argument is not baseless. However, why was growth of deposits so weak? This question remains unanswered.

Low growth in deposits

There are many variables that can affect banks’ mobilization of money, such as interest rates and available funds in the economy. With other conditions unchanged, including fixed interest rates, deposits would increase or decrease when available capital in the economy rises or falls.

The next question is what determines the amount of capital which banks can raise. That is the money supply of the central bank. How ample the money supply is and whether it rises or falls are usually shown in M2 data. M2 is a measure of the money supply that includes cash, checking deposits, and easily-convertible near money.

Data from the State Bank of Vietnam (SBV), as shown in the table below, shows the year-on-year growth of M2 slowed markedly from the second half of 2021 to the first four months of 2022. In the first four months of this year, M2 growth averaged 11.95%. In the second half of 2021, the rate was slightly higher, at 12.2% versus the 14.52% recorded in the first half of last year.

Since April, when the latest data on M2 was made available, it is impossible to confirm whether the deceleration of M2 as formerly observed dragged on in the following months. Based on the recent moves of the SBV, such as withdrawing money from the system through T-bill issues and selling spot U.S. dollar funds, the M2 growth slowdown has continued in recent months.

The slower growth of M2 has made it hard for banks to raise funds for lending while there is a huge demand for loans. To cope with this situation, banks have no choice but to hike deposit rates and eventually, loan interest rates.

Will credit growth caps be increased soon?

When the root cause of the current upward spiral of interest rates is identified, it would be possible to say exactly what is involved and what will happen next. It is believed credit growth limits will soon be raised by the SBV for commercial banks, especially those almost using up their credit growth quotas in the first half of the year. Otherwise, the growing credit demand could hardly be met at a time when the Government has rolled out a 2% interest rate support package for enterprises, cooperatives and household businesses.

Given monetary tightening and the falling money supply, the SBV will unlikely revise up the credit growth limit for the banking system in the second half of this year; otherwise, easing inflationary pressure and stabilizing the Vietnamese dong currency would be hard to achieve.

Credit growth quotas might be adjusted up or down but that would depend on each bank. The ultimate goal is to keep M2 in check in the rest of this year. However, it would be unworkable if the credit growth quota of one bank, which was issued at the beginning of the year, is transferred to another bank that has used up its credit growth quota.

In fact, certain banks will not be able to use up their credit growth quotas in the rest of the year while others have lent more than allowed. As a result, the credit growth limit on the entire system cannot be breached.


Trendy jobs in Vietnam

New and fashionable professions are being pursued by many young people. But not everyone is succeeding.

Shooting star targets bright future

After the retirement of senior champions, the Vietnam shooting team is now relying on its younger athletes, such as 18-year-old Phi Thanh Thao, who was recently nominated as Best Young Athlete of 2022 at the prestigious Victory Cup.

Hanoi needs world-class entertainment sites to lure tourists

According to experts, the lack of world-class amusement and entertainment zones is a big "hole" in Hanoi's tourism.

HCM City tightens management of food labelled 'organic'

Many families choose organic food though recently several supermarkets and e-commerce platforms had to apologise to consumers after non-organic food was labelled and sold as organic.

Vietnam win ticket to 2022 Futsal Asian Cup quarterfinals

Despite their defeat in the match against Japan on October 2, Vietnam’s national futsal team will advance to the quarterfinals in the 2022 Futsal Asian Cup as it ranked second in Group D.

Many parts of Vietnam saw increased fertility rates during pandemic

Fertility rates over the past two years increased across many localities in Vietnam, and it was even higher than the total replacement birth rate, said Director General of the General Department of Population and Family Planning Nguyen Doan Tu.

HCMC plans to eliminate 20,000 slum areas by 2025

According to the Ho Chi Minh City Department of Construction, over the past 20 years, the city has removed 36,000 slum areas along canals, but there are still about 20,000 of them.

Vietnam to have 33 new highways by 2030

With 33 highway projects totaling nearly 3,000 km long planned for construction in 2021-2030, a decade of busy expressway building is expected.

Viettel, VNPT lead Vietnam’s Top 10 most valuable brands

Four telecommunications brands of Vietnam have a total value of 13,136 million USD.

Floods kill eight in Nghe An, Ha Tinh

Heavy downpours and floods in the north central region claimed the lives of eight people in Nghe An and Ha Tinh provinces as of 5:30pm on October 2.

Localities urged to rectify flaws in fishery sector

With the visit of the European Commission’s delegations ahead, Vietnam’s ports and fishers are aiming to remedy the previously criticised issues regarding international fishing regulations.

Market likely to continue to correct this week

Analysts said that in the current environment, financial markets will be very likely to continue revaluing.

Over US$6 bln earmarked for national socio-economic recovery

Prime Minister Pham Minh Chinh has issued a decision earmarking over VND147 trillion (US$6.39 billion) from the State budget for ministries, agencies and localities to carry out the socio-economic recovery and development programme.

FPT Software produces made in Vietnam chips

Vietnam’s FPT Software has launched a new subsidiary, FPT Semiconductor, marking a key milestone for the company as it enters the booming semiconductor industry.

Vietnam's entrepreneurial 'bosses': how are they doing?

There are several famous entrepreneurs in Vietnam who are called “boss”, including Vo Quoc Thang, Tran Dinh Long, Doan Nguyen Duc and Nguyen Duc Thuy.