Several banks swiftly lowered deposit interest rates last week, paving the way for reductions in lending rates in the near future to bolster businesses and fuel recovery.
While this appears beneficial for the broader economy, the policy's ripple effects on bank liquidity and capitalisation are becoming increasingly evident.
Since early 2025, many banks have raised deposit interest rates to attract idle funds amid liquidity strains and rising capital demand. This rate competition affects both deposits and lending, adding pressure on businesses and the economy.
In response, Prime Minister Pham Minh Chinh has ordered the State Bank of Vietnam (SBV) to inspect banks that recently increased deposit rates and closely monitor interest rate policies across financial institutions.
On February 25, the SBV held a meeting with credit institutions to address strategies for stabilising deposit interest rates.
As a result, banks such as Eximbank, BVBank, KienlongBank, the Maritime Bank of Vietnam (MSB) and VietBank have announced new deposit interest rate schedules, with the highest reduction reaching up to 0.7% per year.
Notably, interest rates for several key deposit terms have officially dropped below 6% per year.
According to experts, this gives little room for further interest rate cuts and has raised concerns about liquidity, especially among smaller institutions.
Ivan Tan, Director of Financial Institutions Ratings at S&P Global Ratings, said that the policy's ripple effects on bank liquidity and capitalisation are becoming increasingly evident.
Vietnamese banks are expanding rapidly, with annual growth rates hovering around 15-16%. Yet, this rapid expansion comes with a limitation: low capitalisation levels, Ivan said.
“When banks grow quickly, they need substantial capital buffers to support that growth, primarily sourced from retained profits," he added.
"By cutting interest rates, banks may see their net interest margins shrink, compressing profits and limiting their ability to shore up capital.”
This dynamic creates a cyclical dilemma. The economy’s fast-paced growth demands an equally robust banking system to provide credit. However, as banks struggle to maintain profitability under low interest rates, their capacity to meet this credit demand weakens.
In the long term, this could constrain credit supply, inadvertently curbing the very economic growth the policy seeks to enhance.
Meanwhile, Associate Professor Dr. Nguyen Huu Huan from the University of Economics Ho Chi Minh City said that the impact of interest rate reductions would be limited and the SBV had implemented measures to ensure liquidity.
Analysing recent trends in the monetary market, Huan said that the main reason for the rising deposit interest rates was primarily due to exchange rate pressures.
Fluctuations in the exchange rate had prompted the central bank to conduct net withdrawals through open market operations (OMO), which had created liquidity pressure on banks.
Furthermore, as demand for loans from individuals and businesses increased, banks had been compelled to raise interest rates to attract deposits.
However, the cap on deposit interest rates imposed on banks would have some impacts on their Net Interest Margin (NIM), which represents the percentage difference between interest income and interest expenses.
Consequently, banks would need to sacrifice some profit in response to the directives from monetary authorities, Huan told dantri.com.vn.
While banks’ NIM had declined from earlier periods, their profits continued to grow. This increase was largely attributed to optimised operational costs, as the digital transformation in the banking sector had significantly reduced both personnel and operational expenses.
Huan emphasised that, as banks are profit-driven entities, expecting them to reduce profits to assist businesses would be a challenging proposition.
Nguyen Anh Quan, Analyst and Manager of Financial Sector Ratings at FiinRatings, believes that recent exchange rate pressures have influenced interest rate levels.
In the near future, the Government might prioritise measures such as increasing foreign exchange reserves and attracting foreign direct investment (FDI) to stabilise the exchange rate rather than significantly raising deposit interest rates, he said.
This strategy could impact the profitability of the banking sector, but it would also help maintain relatively low lending rates to stimulate credit growth. He anticipated that deposit interest rates would be kept at moderate levels, allowing banks' NIM to remain stable rather than continuing to decline in the coming period.
The banking sector is currently the most profitable in the Vietnamese economy, according to Huan. In the stock market, banks account for the largest share of market capitalisation, underscoring their significant concentration and role.
This dominance stems from the banking system's control over the capital market. Businesses have few options beyond bank loans, as the corporate bond market remains sluggish, with banks holding around 80% of outstanding bonds.
He advocated for a long-term strategy to develop the capital market and establish alternative financing channels, which would reduce dependency on banks and narrow the gap between deposit and lending rates./.
While this appears beneficial for the broader economy, the policy's ripple effects on bank liquidity and capitalisation are becoming increasingly evident.
Since early 2025, many banks have raised deposit interest rates to attract idle funds amid liquidity strains and rising capital demand. This rate competition affects both deposits and lending, adding pressure on businesses and the economy.
In response, Prime Minister Pham Minh Chinh has ordered the State Bank of Vietnam (SBV) to inspect banks that recently increased deposit rates and closely monitor interest rate policies across financial institutions.
On February 25, the SBV held a meeting with credit institutions to address strategies for stabilising deposit interest rates.
As a result, banks such as Eximbank, BVBank, KienlongBank, the Maritime Bank of Vietnam (MSB) and VietBank have announced new deposit interest rate schedules, with the highest reduction reaching up to 0.7% per year.
Notably, interest rates for several key deposit terms have officially dropped below 6% per year.
According to experts, this gives little room for further interest rate cuts and has raised concerns about liquidity, especially among smaller institutions.
Ivan Tan, Director of Financial Institutions Ratings at S&P Global Ratings, said that the policy's ripple effects on bank liquidity and capitalisation are becoming increasingly evident.
Vietnamese banks are expanding rapidly, with annual growth rates hovering around 15-16%. Yet, this rapid expansion comes with a limitation: low capitalisation levels, Ivan said.
“When banks grow quickly, they need substantial capital buffers to support that growth, primarily sourced from retained profits," he added.
"By cutting interest rates, banks may see their net interest margins shrink, compressing profits and limiting their ability to shore up capital.”
This dynamic creates a cyclical dilemma. The economy’s fast-paced growth demands an equally robust banking system to provide credit. However, as banks struggle to maintain profitability under low interest rates, their capacity to meet this credit demand weakens.
In the long term, this could constrain credit supply, inadvertently curbing the very economic growth the policy seeks to enhance.
Meanwhile, Associate Professor Dr. Nguyen Huu Huan from the University of Economics Ho Chi Minh City said that the impact of interest rate reductions would be limited and the SBV had implemented measures to ensure liquidity.
Analysing recent trends in the monetary market, Huan said that the main reason for the rising deposit interest rates was primarily due to exchange rate pressures.
Fluctuations in the exchange rate had prompted the central bank to conduct net withdrawals through open market operations (OMO), which had created liquidity pressure on banks.
Furthermore, as demand for loans from individuals and businesses increased, banks had been compelled to raise interest rates to attract deposits.
However, the cap on deposit interest rates imposed on banks would have some impacts on their Net Interest Margin (NIM), which represents the percentage difference between interest income and interest expenses.
Consequently, banks would need to sacrifice some profit in response to the directives from monetary authorities, Huan told dantri.com.vn.
While banks’ NIM had declined from earlier periods, their profits continued to grow. This increase was largely attributed to optimised operational costs, as the digital transformation in the banking sector had significantly reduced both personnel and operational expenses.
Huan emphasised that, as banks are profit-driven entities, expecting them to reduce profits to assist businesses would be a challenging proposition.
Nguyen Anh Quan, Analyst and Manager of Financial Sector Ratings at FiinRatings, believes that recent exchange rate pressures have influenced interest rate levels.
In the near future, the Government might prioritise measures such as increasing foreign exchange reserves and attracting foreign direct investment (FDI) to stabilise the exchange rate rather than significantly raising deposit interest rates, he said.
This strategy could impact the profitability of the banking sector, but it would also help maintain relatively low lending rates to stimulate credit growth. He anticipated that deposit interest rates would be kept at moderate levels, allowing banks' NIM to remain stable rather than continuing to decline in the coming period.
The banking sector is currently the most profitable in the Vietnamese economy, according to Huan. In the stock market, banks account for the largest share of market capitalisation, underscoring their significant concentration and role.
This dominance stems from the banking system's control over the capital market. Businesses have few options beyond bank loans, as the corporate bond market remains sluggish, with banks holding around 80% of outstanding bonds.
He advocated for a long-term strategy to develop the capital market and establish alternative financing channels, which would reduce dependency on banks and narrow the gap between deposit and lending rates./.
