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Credit growth is expected to recover slightly in the fourth quarter of 2020


In response to the COVID-19 pandemic and to stimulate credit demand, the State Bank of Vietnam decided to lower the policy interest rates three times in a row in March, May and October with a total reduction of 150 basis points for the refinance rate, as well as lower the ceiling deposit interest rate for less than 6 months from 80-100 basis points.

In addition, the State Bank postponed to tighten the ratio of short-term capital for medium and long-term loans for another year so that commercial banks would not be under pressure to restructure their capital sources in the context that commercial banks have to support businesses that face liquidity difficulties through reducing lending interest rates, debt rescheduling and debt restructuring.

In general, the monetary policies to deal with the COVID-19 pandemic of the State Bank of Vietnam mainly use resources from commercial banks, therefore, the impact on the money supply is not too great compared to tools that directly pump money through buying bonds of other central banks.

In fact, the deposit interest rate at the lowest level in many years due to two reasons: First, the bank liquidity remained in a state of surplus when the supply was abundant (the purchase of foreign currencies and capital mobilization in the first 9 months of the year by the State Bank increased significantly at 7.7%), while the demand side has not shown many signs of recovery (9 month credit increased only 5.12%).

Second, the pressure to reduce deposit rates to maintain the appropriate net interest margin (NIM) in the context that banks have to cut lending rates to support customers affected by the COVID 19.

Up to the present time, the deposit interest rate level has decreased by a total of 50-200 basis points for all terms compared to the beginning of this year. Interest rates for less than 6-month term deposits are currently popular at 2.5-4.00% per annum, much lower than the new ceiling rate of 4% per annum as regulated by the State Bank. Therefore, there is not much room for further reduction of interest rates for less than 6 months term. Meanwhile, the deposit interest rate for terms greather than 12 months is currently popular at 6-7% per annum.

With the current trend of sharply decreasing interest rates, KB Securties Securities Vietnam (KBSV) expects credit growth to recover slightly in the fourth quarter of 2020, especially when indices such as IIP, PMI .. show that production is gradually recovering.

However, the credit demand of the economy will hardly recover to its normal state as before the pandemic. KBSV continues to lower its credit growth forecast for this year to around 8-10% compared with the 10% forecast given earlier.


Kylie Nguyen

© 2019 Vietnam Bank for Agriculture and Rural Development No. 2 Lang Ha street, Ba Dinh district, Hanoi, Vietnam
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