LENDING RATE FORECAST TO BE CUT BY 1-1.5PP IN 2024

There will be little room for further reduction in deposit interest rates in 2024 as they have dropped deeply to pre-COVID-19 levels, while the lending interest rate can still be lowered by 1-1.5 percentage points next year, Vietcombank Securities (VCBS) forecast.

Under a newly released report, VCBS said compared to the end of 2022, the average deposit interest rate in the banking system has decreased by 2-2.9 percentage points, depending on terms. However, the decline has not been fully reflected as the cost of deposit mobilisation has only decreased by 0.1 percentage point from the peak.

According to VCBS, the deposit interest rate level currently drops deeply to the pre-COVID-19 level and there is little room for further reduction. However, during the period of economic recovery, maintaining low interest rates will be a priority. At the same time, keeping a low deposit interest rate for a long time is also a necessary condition to pull the lending interest rate down.

Besides, the handling of corporate bonds requires a lot of capital resources and a low interest rate will be a prerequisite to faster handling of the bonds.

According to VCBS, by the end of the third quarter of 2023, the average lending interest rate recorded on the financial statements of listed banks decreased by about 0.6 percentage points compared to the peak in the first quarter of 2023. However, lending interest rate is still about 1.6 percentage points higher than the bottom recorded in the fourth quarter of 2021.

Specifically, after the State Bank of Vietnam (SBV) lowered its policy interest rates four times, deposit interest rates decreased rapidly. Actual lending interest rate has also gone down by about 2-2.5 percentage points for new loans. However, the interest rate applied to outstanding loans is still high at more than 10 per cent per year.

VCBS expects the lending interest rate will decrease by another 1-1.5 percentage points in 2024. In particular, banks will consider lowering interest rate for some groups of firms which have good business prospects, with an aim to restructure debts and support customers through difficult times.

However, experts forecast that banks will be more cautious in lending as their net interest margin (NIM) is on the decline and bad debt is on the rise. Therefore, VCBS believes that there will be a difference in lending interest rate reduction.

Besides, the group of private banks will drop the rate more sharply than the group of State-owned banks due to a rise in late debt repayment. VCBS expects lending interest rates of private banks will improve in the near future when customers return to repay debts.

Trần Hoài Nam, deputy general director of HDBank, also said there is currently no room to reduce deposit interest rates, while lending interest rates will gradually decrease until the first quarter of next year.

However, it is difficult to make a long-term forecast for the rate after that time, as it depends on domestic and world macro-economic fluctuations, Nam said.

Source: VNS