Vietnamese Commercial Banks Concerned About Rising US Dollar Interest Rates

Strategic Insights -

Vietnamese commercial banks are expressing worry about the impact of rising US dollar interest rates on the domestic market, particularly in light of the US Federal Reserve's decision to increase its interest rate by 25 basis points to 5.25 per cent on June 30. Banks are anticipating a decrease in US dollar lending if they increase their rates in response to changes in global monetary markets, which could spark fierce competition among banks for mobilising capital. According to Nguyen Thi Thien Huong, deputy general director of the Technological and Commercial Bank (Techcombank), banks would have to adjust their own rates to avoid difficulty in mobilising capital, but increasing US dollar lending rates might lead to a decline in demand for loans.

Key Takeaways:

  • Commercial banks in Vietnam are concerned about the impact of rising US dollar interest rates on the domestic market.
  • Banks anticipate a decrease in US dollar lending if they increase their rates in response to changes in global monetary markets.
  • The total lending at commercial banks amounts to just 60 per cent of total deposits, making it challenging for banks to increase interest rates without affecting demand for loans.
  • Director of the Ho Chi Minh City branch of the State Bank of Vietnam, Tran Ngoc Minh, warned that commercial banks should try to avoid unnecessary competition when mobilising capital using higher deposit interest rates.
  • Several joint stock commercial banks, such as Eximbank, have raised their US dollar deposit interest rates by between 0.2 and 0.6 percentage points.
  • The Ho Chi Minh City State bank director stated that commercial banks should not be too concerned about short-term trends in US dollar lending as it remains more enticing than the Vietnamese dong equivalent.
  • According to a recent central bank report, US dollar interest rates remain about half those for the Vietnamese dong.

Statistics:

  • US Federal Reserve increased its interest rate by 25 basis points to 5.25 per cent on June 30.
  • Total lending at commercial banks amounts to just 60 per cent of total deposits.
  • Vietnamese dong rates range from 9.7 to 13.8 per cent per annum.
  • US dollar lending rates stand at 6.4 to 7.1 per cent per annum.
  • Exchange rates of Vietnamese dong against US dollar have remained stable.

Sources:

  • (VNA) July 6 Asia Pulse
  • Nguyen Thi Thien Huong, deputy general director of Techcombank
  • Nguyen Phuoc Thanh, director of the Ho Chi Minh City branch of Vietcombank
  • Tran Ngoc Minh, director of the Ho Chi Minh City branch of the State Bank of Vietnam