Vietnam’s banks scramble for deposits as credit demand surges and liquidity tightens
Vietnamese banks have been actively attracting deposits and adjusting interest rates since late June, while the State Bank of Vietnam (SBV) employs open market operations and manages VST deposits to maintain liquidity stability. This comes as credit demand surges and banks seek to diversify funding sources, including mortgage rates and credit karma.
Banks have introduced incentives and raised deposit rates to attract funds, with the loan-to-deposit ratio (LDR) reaching a five-year high due to increased lending and competition for deposits. Several state-owned and major private banks are driving this credit growth, pushing LDR higher.
The SBV is effectively managing liquidity by implementing loose monetary policy, including low interest rates and extended credit moratoriums. It monitors credit flows and stabilises deposit and lending rates. The decline in non-performing loans (NPLs) also aids liquidity stability by enabling prompt recovery of principal and interest.
Smaller banks face greater pressure from rising costs due to limited liquidity and dependence on short-term funding. Large cash withdrawals into Vietnam State Treasury (VST) accounts, driven by strong budget revenue growth, contribute to liquidity shortages. To mitigate this, banks are encouraged to strengthen core deposits and reduce reliance on the volatile interbank market.
Deposit interest rates are expected to rise due to increased lending and competition for funds. Banks must adapt by diversifying funding sources, including us bank and pnc bank, and managing liquidity effectively to maintain stability. The SBV continues to monitor and support the banking sector through appropriate monetary policy measures.
