Some expect further decline, others predict a rise again

Interest rates hit rock bottom.

After months of consecutive downward adjustments, deposit interest rates continued their record-low trajectory in the final days of December. The Big 4 (including the four state-owned banks: Vietcombank, BIDV, VietinBank, and Agribank ) were among the institutions with the lowest deposit interest rates.

For demand deposits, Vietcombank, BIDV , and VietinBank all list interest rates at 0.1%/year, while Agribank lists it at 0.2%/year.

For a 1-month term, Vietcombank and Agribank list the interest rate at 2.2%/year, while BIDV and VietinBank apply a common rate of 2.6%/year.

Interest rates have fallen to this point, people expect further decreases, but forecasts suggest they will rise again (Figure 1). — In the final days of 2023, deposit interest rates fell sharply and hit rock bottom. However, entering 2024, some expect interest rates to continue falling, while others predict a rebound. (Illustrative image)

For a 6-month term, Vietcombank and Agribank both apply an interest rate of 3.5% per year, while BIDV and VietinBank list a rate of 4% per year.

For a 12-month term, Vietcombank offers the lowest deposit interest rate in the market (4.8%/year). This figure is 5%/year at BIDV, VietinBank, and Agribank.

Currently, the average deposit interest rate at commercial banks is around 5.5% per year. Only a few institutions offer exceptionally high interest rates. These include Vietnam Public Commercial Bank (PVComBank), Ho Chi Minh City Development Commercial Bank (HDBank), and DongA Commercial Bank (DongA Bank). A common characteristic of these preferential rates is that they are only offered to the ultra-wealthy.

Specifically, PVComBank currently offers the highest deposit interest rate on the market at 10.5% per year. This offer applies to 12-month and 13-month terms with deposit amounts up to 2,000 billion VND.

Effective December 18, 2023, HDBank announced a new interest rate schedule with reductions across most maturities. However, the highest rate at HDBank remains 8.4% per annum for a 13-month term with a minimum deposit of VND 300 billion. Additionally, HDBank offers an 8% per annum rate for a 12-month term and deposits of VND 300 billion or more.

According to DongA Bank's latest interest rate schedule, the highest rate offered at this bank is only 5.8% per year for a 13-month term. However, if the deposit amount exceeds 200 billion VND, customers will enjoy a higher rate, up to 7.5% per year.

Some expect further declines, while others predict a rebound.

Vndirect Securities Company predicts that deposit interest rates will continue their downward trend in 2024. Vndirect provides data as of December 14, 2023, showing that the average 12-month deposit interest rate of commercial banks had fallen to 5.0%/year, a further decrease of 0.3 percentage points compared to the end of October 2023 and approximately 2.8 percentage points compared to the end of 2022.

Thus, deposit interest rates have fallen lower than during the Covid-19 period (2021 - the first six months of 2022) due to excess liquidity in the system amidst weak credit demand.

As of November 30th, credit across the entire system increased by 9.15% year-on-year, lower than the 12% year-on-year increase in the same period last year and far from the 14% target for the whole of 2023. In addition, the government has boosted public investment and expanded fiscal policy, thereby injecting more money into the economy.

With the US Federal Reserve (Fed) no longer mentioning the possibility of raising the policy interest rate and forecasting three rate cuts in 2024, the State Bank of Vietnam will have more room to ease monetary policy. The State Bank will consider cutting the policy interest rate by 50 basis points next year if the Fed cuts interest rates as planned and Vietnam's economic growth is lower than expected.

"Therefore, we expect 12-month term deposit interest rates to remain low at around 5.0%/year from the end of 2023 to the end of 2024. We expect lending interest rates to continue their downward trend in the remaining months of the year thanks to the rapid decrease in capital costs for commercial banks recently," Vndirect forecasts.

Meanwhile, MB Securities (MBS) believes that with the Fed's policy interest rate projected to fall to approximately 4% by the end of 2024, the pressure on the exchange rate will not be significant, and the State Bank of Vietnam will have room to maintain its current monetary policy.

Nevertheless, MBS still forecasts a slight increase in interest rates in 2024, stating: "We predict that the 12-month deposit interest rates of major commercial banks may increase by 25-50 basis points, returning to 5.25% - 5.5% in 2024."

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