Some commercial banks have predicted that the overnight interest rate may drop to 0.01 percent per annum. In tier-1 market, i.e the capital mobilized from the public and economic institutions, the interest rates for less-than-six-month term deposits are hovering around 4 percent per annum.

Meanwhile, the highest demand deposit interest rate as quoted by banks is 0.5 percent per annum, and the lowest at 0.1 percent.

The interest rates applied to online depositing are not considerably higher, though banks all offer the higher interest rates of 0.1-0.2 percent.

In the bond market, the government bond yields are also relatively low with 0.51 percent for one-year bonds, 1.26 percent for 3-year, 1.96 percent per annum, 2.96 percent for 10 year and 3.55 percent for 30 year bonds.

Bond trading institutions said the yields of bonds of different terms decrease by 2-5 percentage points every week. Foreign investors buy bonds more than sell. Banks which have abundant capital also buy bonds and insurance companies are taking the same action.

The capital cost has never before been so low. In the interbank market, the dong overnight interest rate was 0.13 percent per annum on July 8, according to STate Bank of Vietnam.

Explaining why they are pour ing money into bonds, the CEO of a bank said government bonds not only are safe, but also have high liquidity.

At the bond auctioning sessions, the amount of bonds offered to buy are always higher than the amount of offers to sell.

Capital has also become abundant because of the low-cost capital flow from overseas.

A large enterprise with the annual turnover of $3 billion a year has repeatedly received offers to borrow capital in dollar at the interest rate of 2 percent per annum from Japanese pension funds.

Why is capital getting so cheap? The answer is banks are finding it difficult to lend money. There are very few borrowers now, because enterprises are not expanding production when the demand, both in the domestic and foreign markets, is very weak because of Covid-19.

A State Bank of Vietnam's report showed that credit had grown by 3.26 percent as of the end of June 2020 compared with late 2019. Meanwhile, the growth rate was 7.33 percent the same period last year.

In such conditions, commercial banks would rather buy government bonds. It is better to accept lower profits when holding government bonds than face the risk of bad debts. Bankers have been warned of the bad debt increase, as businesses are facing big difficulties now and they may fall into insolvency.

All the ‘big four’ banks, namely Agribank, Vietcombank, BIDV and VietinBank, have not used up the quotas for credit growth rates allocated to them by SBV.

Kim Chi 

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