The SBV cuts policy rates

The SBV announced a policy rate reduction effective Mar 15. We have been saying that interest rates might cool down in 2H23, so this decision came earlier than we had anticipated. The -1ppt policy rate reduction effectively reverses half of the +2ppt total increase in Sep-Oct 2022.

The SBV cut two policy rates: the 1) rediscount rate (-1ppt to 3.5%/year), and 2) overnight rate for interbank electronic payments and lending to compensate for capital shortages in clearing payments (-1ppt to 6.0%/year). By contrast, the refinancing rate remains unchanged.

In addition, the SBV has lowered the cap on lending rates. The maximum for short-term lending rate is capped at 5.0%/year (-50bps).

Policy rate cut follows shallower deposit rate cuts by banks. In early March, the banks reduced their rates by -20bps/year to 50bps/year for 6M-12M term deposits.

Our Take

Reduced bank funding costs is intended to support lower loan rates in our opinion. We believe that bank NIMs will not benefit from these combined policies.

Reduced rates should have a broadly positive impact on risk assets such as stocks. We view the SOE 12-month time deposit rate as the de-facto risk free rate for Vietnamese investors.

VND could come under depreciation pressure as a result of the divergent monetary policies (assuming no Fed pivot).

Bank valuations remain attractive. The sector trades at a median 1.0x 2023E P/B with 2023E ROE of 19% (Bloomberg consensus). Our top sector picks still focus on quality: ACB, MBB, and VCB.

For the complete report, please access here: Bank_Sector_Cut Policy rates_Mar 15

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn