A graph created by SSI analysts demonstrates the relationship between credit growth, Net Interest Margin and lending interest rates in the 2012-16 period.(Source: cafef.vn)Hanoi (VNA) - Analysts of the Retail Research and Investment AdvisoryDivision at Saigon Securities Incorporation (SSI) have predicted 2017 will be achallenging year for banks to increase their Net Interest Margin (NIM).
NIMis the ratio of net interest income to invested assets, with the net interestincome being the difference between interest income and interest expense.
Accordingto the division, competitions among banks, compliance with Circular 06 and thegovernment’s effort to maintain low lending interest rates are factors that mayhave an impact on the NIM ratio.
Circular06 issued by the State Bank of Vietnam requires banks to reduce the proportionof short-term deposits used to provide medium and long-term loans from 60 percentto 50 percent this year.
Tomeet the requirements, it is likely that banks would have to raise more mediumand long-term savings and reduce long-term loans which would cause theloan-deposit ratio (LDR) and NIM to decrease.
Tomobilise more savings, SSI researchers predicted that the average depositinterest rate banks offer this year could be higher by 50-70 percentage points,which will lead to higher interest expense.
Thethreatening of FDI outflow [as a result of Fed’s interest rate hike] and thereturn of trade deficit are also reasons for banks to make deposits moreattractive.
Onthe other hands, banks still have to maintain stability of lending interestrates to lure more customers amidst fiercer competition and in response to thegovernment’s call for support to priority sectors such as agriculture and partssupply.
SSIanalysts also warned that those banks holding long-term government bonds withlow coupon rates could face higher risks of reducing NIM.
Accordingto analysts, last year, the banking system’s NIM reached 2.8 percent, 0.1percentage points higher than the previous year’s figure, mostly thanks to theconsumption credit growth which helped increase their interest income.
Asestimated by the General Statistics Office, lending for consumption surged by39 percent in 2016 to reach 605 trillion VND (26.9 billion USD), accounting for11 percent of the system’s total credit loans.
Meanwhile,the low inflation rate of 2.66 percent and the stability of the Vietnam Dong-USdollar exchange rate last year also helped banks reduce their interestexpense.-VNA
VNA
