Local banks are expected to cut interest rates further sometime this year as deposits have been increasing while credit growth has remained sluggish, the Saigon Times Daily reported.

A new round of interest rate reductions is just a matter of time as government bond yields and interest rates on the inter-bank market have kept falling. As of April 22, the banking system reported a deposit growth rate of 3.09 percent while its lending inched up a mere 0.62 percent, the Daily cited the central bank as saying.

Furthermore, there have been no positive signs in banks’ cash flows, signaling yet another round of interest rate cuts.

In April, the Hanoi Stock Exchange held 19 bond auctions, raising over 13.2 trillion VND. However, the bond volume on the primary market tumbled 62 percent against the previous month.

Coupons hovered around 5.58-5.69 percent per annum for two-year bonds, 6.07-6.9 percent per annum for three-year debt papers, 7.12-7.8 percent for the five-year tenor, and 8.7 percent for the 10-year term. They declined by 0.4 to 0.41 percentage points per annum against March.

Since early this year, the State Treasury has mobilized over 80.6 trillion VND from G-bond sales. The agency is the issuer of around 90 percent of G-bonds.

However, last week’s winning coupons of two, three and five-year G-bonds dropped 10 to 20 basic points against the week before. G-bond investors estimated that bond yields would move flat or drop slightly in the next few weeks.

Bond yields on the secondary market have stood at 5.6-5.8 percent, 6.07-6.3 percent and 7.12-7.25 percent per annum for tenors of two, three and five years respectively.

Statistics of banks showed that credit institutions did not show up at auctions on the open market for the second straight week before the national holidays of Vietnam Reunification Day and International Labor Day that ended on May 4.

Meanwhile, the central bank still offered 1 trillion VND each session with a coupon of 5.5 percent per annum for the seven-day tenor. The week before the holiday also saw no loans falling due on the open market.

Given slow credit growth and huge surplus capital, banks have no demand to take out loans through open market operations or purchase bonds.

Interest rates on the inter-bank market have been in decline for short tenors while long-term rates have remained unchanged. The overnight rate has been 1.65 percent per annum, one week at 1.9 percent, two weeks at 2.2 percent, dropping 0.15 to 0.3 percentage points against the previous week respectively. Meanwhile, the one-month rate has stayed unchanged at 3.35 percent per annum.

Large banks have continued to offer loans on the open market with most transactions focusing on tenors below one month.-VNA