Commercial banks' lending rates could drop further

In July 2021, the State Bank of Vietnam (SBV) required commercial banks to reduce lending interest rates to support business recovery. Therefore, banks lowered lending rates by 0.5-2.0% for outstanding loans from pandemic-hit clients.

Despite the rising inflation rate, VNDirect expects the SBV to maintain its accommodative monetary policy until at least the end of 2Q22.

As of November 1, 2021, the 3-month term deposit rates remained unchanged compared to the level at the end of 2020, while the 12 month term deposit rate averaged 5.53%/year, falling about 10bps compared to the level at the end of 2020. Meanwhile, interbank interest rates have rebounded from historic lows in late-2020, but are still very low relative to pre-pandemic levels.

Regarding lending interest rates, the SBV is implementing an interest rate compensation package on a scale of VND3,000bn. It offers lending interest rates of only 3–4% per year for businesses strongly affected by the COVID-19 pandemic. Moreover, the government plans to expand the scale of interest rate compensation for pandemic-hit businesses to VND10,000-20,000bn, focusing on a number of priority audiences, including small and medium-sized enterprises, businesses participating in a number of key national projects, and businesses in certain industries (tourism, aviation, transportation, etc.). Thanks to these supportive policies, VNDirect expects lending rates to decrease by 10–30 bps in 2022F, on average.

However, in VNDirect’s view, the deposit rate is unlikely to remain at a historic low in 2022 for the following reasons: (1) higher demand for fund raising as credit accelerates; (2) inflation pressure in Vietnam could pick up in 2022; and (3) deposits will compete more fiercely with other investment channels such as real estate and securities to attract capital inflow. As a result, deposit rates could slightly increase by 30-50 basis points in 2022F. "The 12-month deposit rates of commercial banks could climb to 5.9-6.1%/year at the year-end of 2022, which is still lower compared to the pre-pandemic level of 6.8–7.0%/year," VNDirect forecasted.