Hike in deposit interest rates won't affect lending: expert

Friday, Mar 04, 2016 08:28

'A banking expert who requested anonymity said yesterday that the increase in the deposit interest rate would likely not last long". — Photo tuoitre.vn

HA NOI (Biz Hub) — A recent hike in deposit interest rates offered by commercial banks will not likely lead to a raise in lending rates. Economists and policymakers expect them to decrease soon.

Nguyen Duc Do, deputy head of the Financial Economic Institute at the Ministry of Finance's Finance Academy, said that at the moment, enterprises in the economy were not strong enough to "suffer" a hike in lending interest rates.

With the new foreign exchange regime, the dollarisation had been eased, meaning many would prefer to save their money in dong and saving rates would be more stable, he said.

A banking expert who requested anonymity said yesterday that the increase in the deposit interest rate would likely not last long.

This was not a reason for banks to raise lending interest rates for now, he said, adding that if there was a reason for higher lending rates, it should rather stem from banks' operation targets, such as liquidity.

He explained that calculation of lending rates was based on many factors, including average saving rates, operation costs and expected profits, thus it was not necessary for lending rates to rise immediately.

There is no foundation to say the deposit rate hike was a step by banks to prepare for the amendment to Circular No 36, under which the maximum ratio of short-term funds used for medium and long term loans will be decreased from 60 to 40 per cent, according to the expert.

An analyst from Bao Viet Securities Company said the higher interest rates offered for long-term or large deposits were to consolidate the medium- and long-term capital sources of the banks.

However, she also said the higher lending rates were not worth concerns in the near future.

"We have to wait and see whether the rate hike will become a race among banks or not," she said. "If not, we don't have to worry about it."

According to Bui Quoc Dung, head of the State Bank of Viet Nam (SBV)'s Monetary Policy Department, there are three reasons for the increase in saving rates.

First, the inflation is predicted to reach 4 to 5 per cent this year, much higher than the rate in 2015, which indirectly puts pressure on the mobilsation of deposits.

Secondly, GDP growth is expected to hit 6.7 per cent, nearly 1 per cent higher than the average level of the 2011-2015 period. Thus, demand for production capital will likely increase.

Third, the interest rate for five-year Government bonds also surged from 5.4 per cent per year to 7 per cent last year, which leads to an increase in demand for Government bonds. Therefore, the medium- and long-term interest rate will be indirectly affected.

Dung said the SBV would continue implementing monetary policies consistently through open market operations and other tools to maintain a reasonable level of liquidity in the banking system in order to stabilise the deposit and lending interest rates of credit institutions, keep inflation under control and ease pressure on foreign exchange.

He said he believed a slight decrease in medium- and long-term interest rates this year was possible.

Expert Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council, said there was an upward trend in interest rates, but it was not worth worrying about. The increase was due to the Government's bond issuance, inflation and credit demand.

However, the Government and SBV are focusing on interest rate stabilization, as well as bad debt settlement. This means there is even a hope for a lending rate decrease of 0.5 to 1 per cent this year.

According to the SBV, short-term lending rates currently range from between 6 per cent and 9 per cent per year, while long-term rates are hovering around 9 to 11 per cent per year, a decrease of 0.2 to 0.5 percentage points compared with the beginning of 2015. — VNS

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