Many commercial banks have simultaneously reduced interest rates
Following the direction of the State Bank, many commercial banks have simultaneously reduced deposit interest rates and adjusted lending interest rates to support businesses and stimulate production and business. However, this raises the question: Will banks really accept profit sacrifice to implement operating policies?
Responding to an interview with Lao Dong Newspaper, Dr. Do Thu Hang - Faculty of Banking, Banking Academy - commented: "It can be seen that banking activities play an important role in the economy, affecting economic growth, financial stability and social security. In particular, with the role of providing capital for businesses and individuals to invest, produce and consume or support monetary policy, the responsibility of the bank does not only stop at maximizing profits but also must ensure sustainable economic development".
According to her, the reduction in interest rates may cause the bank's profit margin to decrease, especially if the mobilization interest rate does not decrease accordingly. However, this does not mean that banks must completely sacrifice profits, Dr. Hang emphasized. In fact, banks can compensate by expanding credit, increasing non-interest income and controlling costs.
Challenges from low interest rates for the banking system
Dr. Chau Dinh Linh - Lecturer at Ho Chi Minh City Banking University - commented that banks with a high CASA (no-term deposits) ratio and abundant mobilized capital will have an advantage in the race to reduce interest rates. Meanwhile, small banks still have to maintain higher deposit interest rates to retain customers, leading to higher capital costs and greater profit pressure.
Sharing the same view, Dr. Do Thu Hang emphasized: In the context of banks having to reduce lending interest rates while deposit costs are unlikely to decrease rapidly, banks will be under pressure to reduce net interest rates (NIM). However, the level of impact on NIM will also be differentiated between banks.
According to her, banks with the advantage of high CASA capital or an efficient business model will have more stable NIMs. However, maintaining low interest rates to support credit also helps credit growth grow quickly and thereby helps stabilize NIM in the long term.
However, she warned that boosting credit could lead to increased bad debt risk if not strictly controlled. This requires banks to be careful and not chase credit growth at all costs, Dr. Hang recommended.
What should banks do to maintain profits?
According to Dr. Hang, to ensure profits in the context of reduced interest rates, banks can implement four main strategies:
First, diversify revenue sources. She said, "banks need to promote non-interest income segments with relatively high profit margins such as financial services, asset management, fintech, etc".
Second, digital transformation and operational optimization. This is an inevitable trend as banks need to cut costs to compensate for the narrowed profit margin due to interest rate cuts.
Third, strengthen risk control. When credit expands, "banks need to ensure good credit quality control to avoid bad debts, thereby limiting reserve costs" - she emphasized.
Fourth, exploiting cheap capital. According to Ms. Hang, "banks can target "cheap" capital sources such as continuing to promote non-term deposits (CASA) to reduce capital costs". This is an important strategy for banks to maintain profits in a low interest rate environment.
