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The downfall of credit demand in Vietnam

July 17, 2020 | 14:35

Credit absorption of the market is very weak. 6 months into 2020, the credit growth was merely 2.45%, compared to 7.33% aforementioned period last year. The market is not really keen on credit even though the interest has been cut down, due to the shortfall of business activities.  – (VNF)    

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The deposit has been growing faster than disbursement in our banking system. According to Centre bank’s statistics, until 20/5 this year, the cumulated deposits were approximately 162,700 billion dong (US $6.99 billion) which means 1,160 billion dong (US $49.8 million) per day on average. While the total disbursement was roughly 108,200 billion dong (US $4.65 billion) – 773 billion dong (US $33 million) per day. Overflowing capital has been an issue for many parts of the country where deposits exceed disbursements.

The surplus capital drives down the interbank interest rates, as well as lending interests for business and individuals. On the other hand, credit demand is expected to rise along with the decline in interests.

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Rate of interests are heavily cut among banks and credit institutions (source: VNF)

From the General Statistics Office, deposits increased by 4.35% compared to the end of 2019, almost double the growth in the same period. Commercial banks are facing with excessive liquidity. While the interbank interest rate is at the new low record.

Numerous banks announced that they are going to reduce the deposit rates, where the current number is already at 0.75%-1% lower for the semiannual term and 1%-2% lower for long term deposits, compared to end of last year period.

Since the Covid-19 pandemic, this is the third time banks shrank their deposit interests simultaneously, From the beginning of July 2020, many banks set their deposit at 3.9-4.05% for under 6 months term and the highest payout is 7.8% for 13 months deposits.

Not only borrowing rate in the general market dropped, rate of interest for interbank is also decreasing significantly. This leads to the overflow of capital. Therefore, many banks have introduced favorable term loans for businesses and individuals, hoping to pump more credit into the market.

The Centre bank also suggested non-Government financial institutions to save costs and reduce their deposit rates, which would lower credit prices, helping to jump-start the economy. For the matter of fact, banks are having ample undisbursed capital, along with the credit demand are in a downfall, many were gladly conformed to the suggestion.

5553 tien viet
Many challenges for Vietnamese businesses during the Covid-19 period (source: pexel photos)

Henceforth, many commercial banks are reducing their interest rates. These new rates are applied for different loan terms. The lowest in the market at the moment belongs to Techcombank, their one-month rate deposit hoovers around 3.15%-3.65% (for ordinary customers, varies by age and the amount deposited). If the customer would like to claim the interest in advance, the rate is only 3% annually.

Vietcombank also joined the movement by reducing their long-term loan rates, down to 5.8% annually for 3 years term, which was a decrease by 0.2 percentage points. This is the lowest among the group of 4 national banks. Before that, Vietcombank, Agribank, BIDV, and Vietinbank were simultaneously cut down the interest for many lending periods, short term loans for 1-2 months were down to 3.7% annually. Many other banks like Nam A Bank, VPBank, TPBank, HDBank, etc. were also slashed their deposit interests.

According to experts, the credit demands in the midst of the Covid-19 pandemic is diminishing heavily. Partly for the difficult situation that businesses are facing, big firms are reluctant to fund their new projects. On the other hand, under the influence of the virus on the business operations, banks are cautious giving credit for small and medium enterprises.

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