Vietnam's Economy Balances Growth and Risks Amid Credit Challenges
Vietnam's economy is grappling with a long-term challenge to reduce corporate reliance on bank credit. Meanwhile, the peak business season has led to increased production and credit demand. The US Federal Reserve is expected to cut rates twice more in October and December. However, Vietnam's State Bank (SBV) is unlikely to immediately follow suit due to domestic pressures.
The current interest rates in Vietnam are seen as positive, with 12-month deposit rates around 6%. However, further cuts are unlikely in the short term due to concerns over the exchange rate, inflation, and credit growth. The credit-to-GDP ratio has surpassed 140%, and the money supply-to-GDP ratio has exceeded 160%, indicating potential risks.
Deposit rates vary depending on the term. Twelve-month rates hover around 6%, while 6-month rates range between 3% and 5%. Despite these rates, there is no publicly available information indicating which banks offer 12-month deposit products above 6% per year. Structural constraints are limiting the monetary policy space for growth stimulus, making it difficult for the SBV to provide additional support.
The negative interest rate differential with the US increases the risk of capital outflow. The SBV is unlikely to immediately cut rates despite growth pressures, as it seeks to balance the needs of the economy with the risks of excessive credit growth and inflation.