Cash transaction at a Hanoi bank. Photo by The Investor/Trong Hieu.

Following guidance from the State Bank of Vietnam - the country's central bank, several commercial banks have lowered deposit rates by 0.5-1 percentage point for tenors of six to 12 months. However, market conditions suggest a more uneven picture.

Since early April, rate cuts have been concentrated among banks with strong liquidity or state ownership, while many joint-stock lenders have kept deposit rates elevated to retain customers.

Interbank rates have also signalled strain, with overnight and short-term rates rising to 4.5-5.5% in April before easing, pointing to pockets of liquidity pressure in the system.

In contrast, lending rates have shown little adjustment, with medium- and long-term rates remaining at 9-11% per year, highlighting a lag between policy direction and market reality.

Banking expert Nguyen Tri Hieu said lending rates have remained firm or even edged higher despite some deposit rate cuts per the central bank's direction, reflecting banks’ reluctance to compress margins amid rising risks.

He cited global uncertainties, including oil price volatility and Middle East tensions, alongside domestic asset quality concerns, as key reasons banks are maintaining higher lending rates. As risk increases, lending interest rates – which are a function of risk – must remain high.

FiinRatings forecasts the sector’s net interest margin (NIM) will stay below 3% in 2026, as liquidity pressures that emerged in late 2025 continue to push up funding costs.

Banks also face the risk of deposit outflows if rates fall too quickly. Hieu warned that in an environment where gold and equities offer attractive returns, savers may shift funds away from banks, undermining liquidity and lending capacity.

Macroeconomic conditions further constrain room for easing. The Vietnamese dong has depreciated by around 2-3% against the U.S. dollar since the start of 2026, as the Federal Reserve maintains elevated rates, narrowing the VND-USD interest rate differential and complicating monetary policy.

At a recent meeting, the central bank has acknowledged limited policy space, stressing the need to balance growth support, inflation control, and exchange rate stability amid global uncertainty.

HSBC analysts said Vietnam is prioritizing exchange rate stability and inflation control, while Standard Chartered expects policy rates to remain steady but market rates to face upward pressure due to higher funding costs and credit risks.

Liquidity and bad debts pose twin challenges

Liquidity pressures are already evident in banking operations. Broker VNDirect said funding costs are likely to rise more sharply from mid-2026 as credit demand recovers faster than deposit growth. This could lead banks to continue maintaining high lending interest rates to protect their profit margins.

Pham Nhu Anh, CEO of Military Bank (HoSE: MBB), said the bank maintained a loan-to-deposit ratio (LDR) of 79% last year, but noted that most of the system operates with LDRs of 100-112%, indicating tighter liquidity conditions.

Credit structure is also shifting after strong growth in 2025 driven by real estate and foreign-invested sectors. Regulators have tightened rules, capping real estate credit growth at overall credit growth rates for each bank.

Meanwhile, the implementation of Basel III standards under the central bank's Circular 14/2025 has increased pressure on capital adequacy ratios (CAR). While state-owned banks have raised CAR to about 10.7% through Tier 2 bond issuance, smaller banks face capital constraints and may need to rein in expansion.

On asset quality, non-performing loans were kept at around 1.9% in 2025, partly due to aggressive write-offs. FiinRatings warned that as such measures normalize, bad debt pressures could rise in 2026, especially as provisioning buffers have fallen to their lowest levels since 2021.

Looking ahead, Hieu said interest rates are unlikely to ease, with both deposit and lending rates expected to trend higher as funding costs climb.

The World Bank Group said divergence within the banking system will become more pronounced. Banks with strong capital bases, high CASA (current account savings account) ratios, and good international fundraising capabilities will have a significant advantage, while banks relying on traditional fundraising methods will face higher capital costs.

In this environment, capital strength and liquidity management will be critical in determining which banks can sustain growth and which must prioritize stability.