Net Interest Margin of commercial banks in 2016 (percent) (Source: BIDV Securities Company)Hanoi (VNA) - Commercial banks whichhave cut interest rates for short-term lending following the State Bank of Vietnam(SBV)’s cue might suffer a further decline in the net interest margin (NIM),experts said.
On July 7, the SBV decided to cut the annualmaximum refinancing interest rate, rediscount interest rate and overnightinterest rate applied to electronic inter-bank payments. It also cut the rateof loans in order to offset capital shortage in clearing of payments betweenthe SBV and domestic banks by 0.25 percentage points. The new rates came intoeffect on July 10.
The annual short-term interest rate ceiling forcredit institutions loans in VND has also been cut by 0.5 percentage points forsome sectors.
Accordingly, businesses operating inagricultural, export and auxiliary industries; small and medium-sizedenterprises; and high-tech firms can borrow loans at a maximum short-term rateof 6.5 percent per year, instead of 7 percent.
Following the decision, several commercial banksannounced rate cuts.
The adjustments are expected to supportbusinesses and boost economic growth, but they also may negatively impactbanks’ NIM.
NIM is the ratio of net interest income toinvested assets, with the net interest income being the difference betweeninterest income and interest expense.
To maintain a sound NIM, commercial banks wouldhave to reduce their deposit interest rates, which would probably send capitalflows to other investment channels, said Can Van Luc, director of BIDV TrainingSchool at the Bank for Investment and Development of Vietnam (BIDV).
Commercial banks would also have to comply withthe SBV’s Circular 06/2016/TT-NHNN, which specifies a roadmap for the maximumratio of short-term funds used for medium and long term loans.
Under the circular, the 50 percent ratio will bekept until December 31 this year. It will drop to 40 percent from the beginningof 2018.
To prepare for the deadline, it is unlikely thatcommercial banks will further push down their deposit interest rates. Otherwise,they would face difficulties in term of liquidity and their net interest incomewould be harmed, financial expert Nguyen Tri Hieu said.
According to KIS Vietnam Securities Companyanalysts, the Vietnamese banking system NIM has continuously declined from 3.07percent in 2013 to 2.69 in 2016. This level is also much lower than those ofregional neighbours such as Thailand (3.07 percent), Indonesia (5.82 percent)and the Philippines (3.58 percent).
With such a low NIM, the banking system wouldfind it hard to suffer a savings rate reduction, Luc said.
Statistics from the General Statistics Office of Vietnamshow that capital mobilisation of credit institutions increased by 5.89 percentin the first six month of the year, compared with 8.23 percent of the sameperiod last year. Meanwhile, credit from January to June grew by 7.54 percent,the highest rate in the past six year.-VNA
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