Vietnam's Average Lending Rate Climbs to 10.7% Amidst Rising Deposit Rates

Vietnam's average lending rate has climbed to 10.7%, a significant increase driven by a ripple effect from banks raising their deposit rates. According to newly released data from the State Bank of Vietnam, the average lending rate in August stood at 10.7%, marking a 0.2 percentage point rise from the previous month. This represents an increase of approximately 3 percentage points compared to lending rates for loans disbursed a year ago. While state-owned banks like BIDV and Vietcombank have announced average lending rates around 7.4-7.6%, some private banks such as Eximbank, KienlongBank, and MBV are quoting rates ranging from 8.4% to 9.5%. However, a survey by VnExpress reveals that actual lending rates are considerably higher. The "Big4" banks are currently lending at rates between 9% and 10.5%, while some private banks may charge up to 12%. The actual rate is heavily dependent on various factors, including loan term, purpose, collateral, and credit history. Short-term lending rates for priority sectors such as exports, agriculture, supporting industries, small and medium-sized enterprises, and high-tech applications have also edged up in August, reaching the State Bank's regulatory ceiling of 4%. This is the first time in many years that banks are lending to priority sectors at the maximum rate. According to an analysis group at SSI Securities, in the context of persistently high interest rates, banks are increasingly shifting their loan portfolio structure towards medium and long-term loans, rather than short-term ones. Home loan origination has slowed, even for banks with ample credit limits and a strong presence in this segment. This trend is understandable, as floating interest rates commonly range from 12% to 14%. Despite Prime Minister Le Minh Hung's directive mid-last month for banks to reduce costs, stabilize interest rate levels, and substantially lower actual lending rates to share the burden with citizens and businesses, lending rates show no signs of cooling down. This indicates that banks continue to face pressure to protect their profit margins amidst elevated capital mobilization costs. State Bank statistics show that the highest deposit interest rates for 6-12 month terms have reached 8%, and for terms longer than 24 months, they stand at 8.1%, both up by 0.2 percentage points from the previous month. However, actual transactions often exceed published rates, as many banks offer additional interest to new customers or on weekends and specific "double-digit" days. Six-month deposit rates are currently around 8.5-9.3%, and negotiated rates have also been raised, exceeding 9.7% for deposits over one billion VND for 12 months. Employees at some smaller banks indicate that interest payments could approach 10% for deposits exceeding 10 billion VND, with the condition of no early withdrawal. Banks are also accepting higher capital costs to mobilize funds through instruments like certificates of deposit and bonds. The average interest rate for bank bonds issued last month was 8.7%, according to VIS Ratings. The high interest rate environment is primarily attributed to the imbalance between credit growth and deposit mobilization. At times, a gap of nearly two trillion VND has forced banks into a race to attract savings deposits, in addition to raising funds from sources like issuing securities, interbank borrowing, and State Treasury deposits. Most analytical groups lean towards the likelihood that deposit and lending rates will not cool down in the short term, especially as credit demand tends to accelerate towards the end of the year. Experts from SSI Securities and Yuanta Vietnam suggest that central banks may have to maintain current interest rate levels or continue to raise them if inflation persists. This scenario puts pressure on interest rate levels already strained by domestic liquidity, making it probable that commercial bank rates will remain high. Information Source: VnExpress