While depositors always expect deposit interest rate to increase, enterprises and individual customers always expect the interest rate to decrease. What is the increase or decrease between the input and output interest rate in 2021?
The banking system is making efforts to further reduce interest rates to support customers.
Deposit interest rate stands still
With a deposit of VND500 million is going to end its term, Le Thi Huynh, a resident in Phu Cuong ward (Thu Dau Mot City), wondered if she should continue to deposit her money in bank or find other investment channels. "Interest rates lately have decreased significantly compared to beginning of last year, I intend to withdraw my money and go into business partnership, but I find that the Covid-19 has not been totally controlled, so I am hesitating," Ms. Le said.
Since the end of 2020, the trend of lowering deposit rates at many commercial banks has stood still. Although there are a few commercial banks that have slightly adjusted deposit rates, generally it is not common. At Techcombank, the latest deposit rates applicable from beginning of 2021 are listed at an increase of 0.1 to 0.5% compared to the previous interest rate, even for both short and long terms. In which, for the term of 12 to 23 months, the highest annual interest rate increased from 4.2% to 4.5%. Major banks such as Agribank, Vietcombank, BIDV and Vietinbank, continued to maintain the 12- and 24-month interest rates at 5.6%.
Will loan interest reduce further?
In fact, when customers need to borrow loans, they want to find a place to lend with the lowest interest rates. While depositors always want high interest rates, this is a normal demand in economics. So what do commercial banks do to balance these two needs? The actual monetary market developments show that deposit interest rate has bottomed out for many years and is unlikely to decrease furthermore.
With the current situation, this problem must be put against inflation. In 2020, the CPI maintained 3.23% on average, reaching the Government’s target of controlling inflation below 4%. Meanwhile, from viewpoint of economists, the scenarios of 2021 could impact on the average CPI forecasted at 4 to 4.5% / year. However, the market still expects lending rates would continue to go down to support borrowers. In the 2020 macroeconomic report and 2021 prospects of Institute for Training and Research under Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) recently announced, Dr. Can Van Luc, economist - BIDV's chief said that in 2021, the deposit interest rates would be under more pressure to increase, when the demand for credit recovers; inflationary pressure would be also higher, requiring management agencies to pay close attention to this issue.
According to statistics of State Bank of Vietnam - Binh Duong branch, in 2020, although the deposit interest rate decreased, cash flow still went into banks with the total deposit rate in the province was estimated to increase by 11.5% compared to the previous year 2019. The reason is the Covid-19 pandemic made people and businesses afraid to pour capital into production and business. However, according to the assessment of small and medium enterprises, in 2021, when the pandemic is controlled, more cash flow would flow into production and business, making it harder for deposit interest rates to decrease. "Therefore, banks should reduce interest rates more to encourage customers to borrow loans, boost capital flows into business investment" said Huynh Quang Thanh, General Director of Hiep Long Wood Company.
Tran Ngoc Linh, Director of BIDV - Binh Duong branch, predicted that lending interest rate level this year could decrease slightly thanks to the low deposit interest rate, thereby creating a premise to decrease loan interest rates, especially in prioritized sectors and industries. Lending interest rate is forecasted to decrease by 0.3 - 0.5% / year, because of tpthe delay between deposit and lending interest rates that need at least 6 months or even longer while commercial banks are prioritizing credit quality.
Nguyen Thai Minh Quang, Director of Vietcombank-Binh Duong branch, said that the economy with a rapid recovery after the Covid-19 pandemic, vaccines for this disease are showing positive signs, making the market prosper, the demand for credit would increase higher than 2020. Therefore, deposit rate would increase due to the capital attraction of banks. In the opposite direction, cash flow is still pouring into banking system, the liquidity of banks is quite strong. At Vietcombank Binh Duong, in 2020, total deposit of its entire system in the province increased by 14%, this helped stabilize the deposit rate. According to Nguyen Thai Minh Quang, the current goal of lowering interest rates is keeping up by Vietcombank system in order to contribute to lowering financial costs of domestic enterprises. Therefore, lending interest rates would be stable with a low level in 2021 to increase lending to production and businesses.
Currently, five prioritized lending areas are being applied by Vietcombank at 4.5% / year; short-term preferential loans 6.5% / year for enterprises. Loans to individual customers in rural areas are only 4.5% / year and maximum 10% / year. Vietcombank is striving for more cost savings, investment in preferential loan packages to reduce interest rates, serving maximum investment capital for socio-economic development.
Reported by Thanh Hong - Translated by Ngoc Huynh
