Reduced operating interest rates: Stimulate production, unclog securities

Interest rate reduction is on the rise.

According to regulations from the State Bank, from June 19, the ceiling interest rate for deposits with terms of less than 6 months will be reduced to 4.75%/year, a decrease of 0.25 percentage points compared to before. Currently, a series of commercial banks have adjusted the interest rate according to regulations. Even through the market records, it shows that some commercial banks have reduced the interest rate for deposits with terms of 1-5 months to lower than 4.75%/year, and at the same time adjusted the interest rate for other terms down.

Transaction at a bank in Ho Chi Minh City. Photo: MINH HUY

Specifically, Agribank reduced the term of less than 6 months to 3.4% - 4.1%/year; the highest interest rate for terms of 6 months or more and 12 months or more is only 6.3%/year. Or PVCombank reduced the 6-month interest rate to 7%/year and the 36-month interest rate from 8.3% to 7.8%/year... Currently, there are only a few commercial banks with long-term interest rates above 8% such as ABBank, GPBank, VIB, BacABank...

The SBV leaders affirmed that the continued reduction of operating interest rates will establish a downward trend in interest rates for the market in the coming time, helping to guide credit institutions to be more bold and decisive in reducing lending interest rates. However, according to financial experts, the reduction of interest rates will be delayed and cannot be reduced immediately, and it will take at least until the third quarter of 2023, when the pressure on capital costs decreases, for banks to be able to reduce lending interest rates.

For banks, the delay in adjusting lending rates depends on the scale, capacity, capital structure and governance of each bank. Commercial banks also acknowledge that the current lending cost is still high because it depends heavily on high-interest capital mobilized in the past, especially in the second half of 2022.

Although the adjustment of lending interest rates requires a delay, the economy in general is receiving good news because monetary policy is gradually loosened. In addition to reducing interest rates for production and business sectors, many banks have also tended to reduce interest rates for home loans, helping the real estate market to see a positive "ray of light".

Some commercial banks have reduced interest rates for deposits under 6 months to 4.75%/year (Photo: Transaction at a bank in HCMC). Photo: MINH HUY

Updates from the latest report on the real estate market by VNDirect Securities Company show that in the Southern market, many projects have recorded a gradual increase in transaction volume.

Decreasing interest rates

When the FED stopped raising interest rates after 10 consecutive increases, the State Bank of Vietnam (SBV) continued to reduce operating interest rates for the fourth time in 3 months and many commercial banks also strongly reduced deposit interest rates. Not only did they adjust the term of less than 6 months down to 4.75%/year as prescribed, but many commercial banks also reduced it even more deeply. Agribank even adjusted the interest rate for 1-2 months down to 3.4%/year. Along with lowering deposit interest rates, lending interest rates also continued to decrease. Sharing at a recent press conference of the SBV, Standing Deputy Governor of the SBV Dao Minh Tu said that the average deposit interest rate of commercial banks is currently at about 5.8%/year, down 0.7% compared to the end of 2022 and the average lending interest rate in VND is at about 8.9%/year, down 1%/year compared to the end of 2022.

Specifically, in April 2023, The Classia Khang Dien project (Thu Duc City, Ho Chi Minh City) transacted an average of about 8 units/week; De La Sol project (District 4, Ho Chi Minh City) transacted an average of 3-4 units per day; The Maq project (District 1, Ho Chi Minh City) of Hongkong Land also sold 7 units in April 2023 and then transacted an average of 2-3 units/week; Akari City project (Binh Tan District, Ho Chi Minh City) had more than 50 transactions in May 2023...

In addition, the capital absorption rate in neighboring provinces was also recorded at 40%-60% with 6 projects offered for sale, creating a supply of 390 apartments. "This is a positive sign for the real estate market in a context where there is still a lot of pressure on confidence and psychology," an expert from VNDirect Securities Company assessed.

Securities benefit

According to many economic experts, the stock market often declines when the policy interest rate increases or becomes unstable. And when the policy interest rate decreases and remains stable for a long time, the stock market increases sharply. Therefore, when the State Bank continues to reduce the policy interest rate, it will be beneficial for the growth of the stock market.

Further explaining, many economic experts believe that high interest rates will affect business performance because of higher costs, affecting investors' expectations in the market. In addition, high interest rates also cause a part of money from securities to be withdrawn to deposit in the banking system.

Mr. Nguyen The Minh, Director of Analysis at Yuanta Vietnam Securities Company, commented that the monetary policy loosening of the State Bank always affects the stock market. Stocks are the channel that benefits immediately after interest rate reduction because when savings deposits are less attractive, there will be a shift to other channels, including the stock channel.

Records on the stock market show that liquidity increased rapidly in the first half of June 2023, the market has "reestablished" many trading sessions exceeding 1 billion USD, contributing to the recent upturn in the Vietnamese stock market. Statistics from securities companies also show that the market's growth momentum is not only focused on a few extraordinary trading sessions, but the average trading volume per session in the past 4 months has increased continuously.

Specifically, the average trading volume in March 2023 on the Ho Chi Minh City Stock Exchange was about VND9,200 billion; by April 2023 it increased to nearly VND11,200 billion; by May 2023 it increased to VND12,200 billion and by the first half of June 2023. The average trading volume per session reached VND17,400 billion, nearly double that of the previous months. One of the driving forces for cash flow to return to the stock market is the State Bank's continuous lowering of the base interest rate since the beginning of the year. Securities companies predict that the VN-Index in 2023 will generally have an upward trend, when the interest rate level decreases and liquidity in the market is abundant.

- Dr. Can Van Luc, Chief Economist of BIDV :

The move to reduce the operating interest rate of the State Bank shows that the executive agency has changed the monetary policy from cautious to flexible and loose. In particular, the interest rate reduction will have a partly positive impact on the stock and real estate markets when investors may shift part of their savings to stocks and buy real estate with the desire to seek higher returns. However, this depends largely on the risk appetite of each investor, because investing in stocks and real estate is riskier than saving money.

- Dr. NGUYEN XUAN THANH, senior lecturer at Fulbright University:

Inflation as of May 2023 is only about 2.4%, lower than the 4% target set by the National Assembly at the beginning of the year. The SBV's policy management perspective is still cautious with inflation, but it is no longer a major concern. On the other hand, after 10 interest rate hikes, the FED has temporarily stopped. The USD/VND exchange rate is stable. The SBV is buying USD to increase reserves. Currently, Vietnam's foreign exchange reserves have reached about 91.5 billion USD, and it is forecasted that the SBV will continue to buy to bring foreign exchange reserves to 100 billion USD by the end of the year. Without pressure on exchange rates and inflation, abundant liquidity is the basis for the SBV to continue to lower interest rates in the coming time. However, the big pressure now is to continue to lower interest rates for businesses to be able to promote credit growth. Therefore, it is forecasted that in the second half of 2023, the State Bank will both pump money and lower operating interest rates to support economic growth.

Although the economy is still facing many difficulties, there are still businesses on the stock market that have grown quite sustainably and paid high dividends. Specifically, in May 2023, many businesses decided to pay 2022 cash dividends at a rate of 30% (1 share receives 3,000 VND) such as: Dong Nai Water Supply Construction and Services Company (DVW), Hung Yen Garment Corporation (HUG), IDICO Oil and Gas Construction Investment Company (ICN), Vinacomin Coal Import-Export Company (CLM). Other companies pay cash dividends from 45%-50% such as International Dairy Company (IDP), Binh Minh Plastic Company (BMP)...

Source: https://www.sggp.org.vn/lai-suat-dieu-hanh-giam-kich-san-xuat-khoi-thong-chung-khoan-post695139.html