In a directive issued on December 16 on measures for interest rate and credit management, Prime Minister Pham Minh Chinh instructed the State Bank of Vietnam (SBV) to focus on decisive and effective implementation of tasks regarding interest rates, exchange rates, and credit growth management.

No year-end easing of focus on business support and stability

The aim is to lower lending rates to meet capital demands during the Lunar New Year, and the early months of 2025, alleviating difficulties for citizens and businesses, supporting production, and ensuring credit is effectively funnelled into the economy.

“The SBV must continue to implement stronger, more effective measures within its authority to reduce the lending rate levels of the credit institution system, enabling citizens and businesses to grow production, generate revenue, achieve profits, and repay loans. Credit activities must be closely monitored, with interest rates published transparently, and violations strictly addressed. Effective solutions must be employed to handle and prevent bad debts, ensuring the safety of the credit system,” the directive said.

However, during the Banking Task Implementation Conference for 2025 held on December 14, SBV Governor Nguyen Thi Hong acknowledged significant challenges in managing interest rates due to pressures from both international markets and domestic conditions.

“If lending rates are significantly reduced, exchange rates may increase sharply, destabilising the macroeconomy and causing anxiety among foreign investors,” Hong said.

In a banking sector outlook report released last week by Vietcombank Securities (VCBS), it was forecast that the lending interest rate environment is expected to remain stable in Q4 but could increase by 0.5-0.7 per cent in 2025 amid economic recovery and stronger credit demand.

“A slight rise in deposit interest rates may place pressure on lending rates. However, the abundant credit room in recent times has intensified competition among banks for credit growth, helping to maintain lending rates at low levels,” the report noted.

VCBS also projected short-term differentiation in lending rates. Rates for priority sectors, such as agriculture and exports, under preferential interest rate programmes, may experience slight reductions. Conversely, rates for sectors with faster recovery but higher risks, like real estate and construction, are likely to increase in tandem with deposit rate hikes.

“As of the end of Q3, average lending rates reported in the financial statements of listed banks had decreased by approximately 2.7 per cent from the peak in Q1/2023. These are the lowest levels in many years. Lending rates among private commercial banks are expected to slow down in Q4, with improvements anticipated in 2025 as customers resume repayments. State-owned and large private banks may recover sooner due to better asset quality,” the report added.

Data from the SBV showed that total outstanding credit in the economy currently stands at $637.5 billion, while mobilised capital exceeds $616.67 billion, with credit growth outpacing capital mobilisation. As of December 7, credit growth reached 12.5 per cent, while capital mobilisation was at 7.36 per cent per annum.

Despite persistent capital mobilisation shortfalls, the SBV has supported liquidity in the banking system as mandated by the government, aiming to meet the economy’s capital needs, support production and business, and achieve a credit growth target of 15 per cent for 2024.

Specifically, in November, SBV injected nearly $2.52 billion into the system to support banks. Despite the liquidity challenges, banks have been aggressively injecting funds into the market through various means.

SBV Deputy Governor Dao Minh Tu said, “The SBV continues to maintain key interest rates, allowing credit institutions to access funds from the SBV at low costs. This supports the economy while directing credit institutions to reduce operational costs and strive to lower lending rates. Credit institutions are also required to report and disclose average lending and interest rate spreads. As of now, lending rates have decreased compared to the end of 2023.”

Additionally, the practice of taking loans to repay debts at other banks has gained traction. Experts note that lending rates for existing loans are often meticulously calculated based on mobilisation costs, operational expenses, and risk compensation, making it difficult for banks to directly reduce rates for their customers.

However, with Circular No.06/2023/TT-NHNN, borrowers with loans exceeding 10 per cent per annum can transfer their loan profiles to other banks for lower interest rates. Currently, bank employees are pursuing such customers to meet credit targets, creating a silent but fierce competition among banks.

“The SBV’s liquidity support for the banking system enables banks to inject credit into the economy in line with overall objectives, but has yet to significantly lower interest rate levels,” one financial expert told VIR. “On the surface, the positive aspect of Circular 06 lies in the benefits for customers. This policy allows borrowers to choose banks with better policies, interest rates, and service quality. At the same time, each bank must enhance its offerings to retain old customers and attract new ones.”

However, borrowers should calculate the benefits of new loans, as interest incentives often only apply for 6-12 months, after which floating rates are introduced, he added.