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Interest rates are expected to decrease in early 2021

Interest rates are expected to decrease in early 2021

Friday 11, 12 2020
2021 is an unpredictable year. However, the interest rates are expected to decrease in the beginning months of 2021.

Decreased interest rates

In the last month of 2020, many commercial banks have continued to lower interest rates for both deposits and loans. This is a positive signal, creating favorable conditions for economic recovery after the negative impacts of the COVID-19 pandemic since the beginning of the year.
The highest deposit interest rates at banks are popular from 6.5% to 7.1% p.a. with deposit terms from 12 months. In particular, some banks still offer the highest interest rate above 8% p.a. but with some conditions.
Notably, Vietnam Export Import Commercial Joint Stock Bank (Eximbank) is a capital mobilization bank with the highest interest rate of 8.4% p.a.; followed by Orient Commercial Joint Stock Bank (OCB) with the interest rate of 8.2% p.a. However, this interest rate is only applied to deposits of VND 500 billion or more with terms of 13 or 24 months.
 Eximbank, OCB, Lienvietpostbank
Vietnam Maritime Commercial Joint Stock Bank (MSB) and Lien Viet Post (LienVietPostBank) have also listed their highest interest rates of 8.0% and 7.9% p.a., respectively, for savings of VND 200 and 300 billion VND or more with terms of 12 or 13 months.
Among more than 20 banks surveyed, Vietnam Prosperity Joint Stock Commercial Bank (VPBank) has the lowest deposit interest rate of 5.5% p.a. applied for the deposit from VND 50 billion VND with terms of 24 and 36 months.
At four large banks, the deposit interest rates decreased slightly by 0.1% to 0.2% compared to the beginning of last month depending on terms. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), Vietnam Bank for Agriculture and Rural Development (Agribank) all listed their current highest interest rate of 5.6% p.a., slightly decreased by 0.2% for depositing terms of more than 12 months. At Bank for Foreign Trade of Vietnam (Vietcombank), the highest interest rate also decreased by 0.1% compared to the beginning of November, but slightly higher, at 5.8% p.a., applied to deposit terms of 12 months. The highest interest rate for deposit savings with terms of less than 12 months term at these banks is only 4% p.a.
 Decreased interest rates
It can be seen that the highest deposit interest rate is no longer for long terms over 36 months as before, but mainly focuses on terms of 12 - 24 months. At some banks, the 36-month deposit interest rates are even lower than the 24-month deposit rates.
This scenario is contrary to the past when banks had encouraged people to deposit in long terms to maintain stable capital flow. According to the State Bank, as of November 17th, 2020, the credit balance of the whole economy was more than VND 8.79 million billion, up 7.26% compared to the end of 2019, but much lower than the level of 10.28% in the same period in 2019. In such a context, the liquidity of banks is now quite abundant. Especially many banks have recently focused on mobilizing long-term capital to meet the State Bank's regulations on short-term capital for medium and long-term loans. Therefore, the demand for long-term capital has decreased somewhat and interest rates have also tended to decrease slightly or been stable. 
Although deposit interest rates have decreased, lending rates have not gone down correspondingly. Many banks still have a large amount of long-term capital mobilized with high interest rates of about 7 - 8% or even higher. Therefore, the cost of input is still high, not making the lending rate drop immediately.
Even when the lending interest rates fall, it is still hard for banks to find suitable customers. That is because even preferential credit packages must go with certain standards. The interest rates are reduced but the credit quality cannot be. Therefore, if customers do not meet the criteria, the bank cannot disburse.

Interest rate trend at the beginning of 2021

Commenting on the interest rate trend in the coming time, Ms. Dao Minh Anh, Deputy General Director of OCB, the interest rates will continue to decrease from now until the end of the year and even in early 2021. The credit growth in the past 9 months was only over 6%, but has gradually increased again since the beginning of the fourth quarter of 2020. This year's credit growth is expected to reach 10%, mainly concentrated in this quarter.
Due to the COVID-19 pandemic, international trade has been and will be affected. Therefore, 2021 will be an extremely difficult year for businesses, individuals as well as the whole bank. This is the time when the bank has to stand by businesses, providing financial solutions, and supporting businesses, according to Ms. Minh Anh. 
 Interest rate trend at the beginning of 2021
Normally, when the deposit interest rate is reduced from 0.1- 0.2%, the lending rate will also be reduced correspondingly for both new and existing borrowers. 2021 is an unpredictable year. However, the downward trend of interest rates is likely to continue in the first months of the year.

Compiled by VietnamCredit

Banking & Finance

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