Interbank lending rates swing sharply in the first three months of the year

Interbank borrowing rates have risen sharply across several sessions and are not expected to return to pre-crisis lows soon. From the start of the year, the market has seen pronounced volatility, with the overnight rate reaching 17% on February 4—the highest level in about a decade.

Volatility in interbank rates

In March, many sessions saw interbank rates above 10% before cooling. By early April, the overnight rate remained around 9%. Interbank rates are loan rates between credit institutions, primarily used to meet short-term liquidity needs within the banking system.

Liquidity pressure drives the rise

The sharp increase in interbank rates reflected liquidity pressure that began building from late last year. After a period of rapid credit expansion, loan balances at many banks reportedly surpassed the size of their deposits. The loan-to-deposit ratio at many banks exceeded 100% and continued to trend higher compared with the start of 2025.

As a result, some banks had to borrow in the interbank market at higher costs. Vietcombank Securities (VCBS) analysts said liquidity pressure and capital adequacy concerns have increased since the second half of 2025, particularly among small and mid-sized listed banks.

Funding reliance increases when buffers weaken

VCBS noted that when banks’ capacity to absorb short-term shocks weakens, they rely more on interbank funding, which raises overall funding costs. The analysts also pointed to a local bottleneck lasting several months, noting that cash within the system had not yet shifted from surplus banks to shortage banks, increasing interbank borrowing demand.

Exchange-rate policy adds to liquidity constraints

Beyond domestic factors, exchange-rate policy has also affected system liquidity. The State Bank of Vietnam recently implemented the sale of USD 180-day forwards to credit institutions at 26,850 dong per USD to help stabilize the exchange rate amid stronger USD demand linked to geopolitical tensions.

Nguyen Hoan Nien, an analyst at Shinhan Securities, said the measure can reduce exchange-rate pressure but also “pins” a portion of the dong in the system, reducing liquidity and contributing to higher interbank rates.

Temporary fluctuations versus long-term impact

Nien added that interbank rates mainly reflect temporary liquidity fluctuations. Only if these fluctuations persist and form a clear trend can their long-term impact on broader market-rate levels be assessed.

Interbank rates and deposit rates: not a simple link

Nien said interbank lending rates reflect liquidity pressure but do not necessarily push deposit rates higher. He also noted that the relationship between interbank rates and household deposit rates in Vietnam does not always follow a one-way pattern. In some periods, deposit rates may rise first and then affect the interbank market.

This is partly attributed to the structure of Vietnam’s banking system. Net interest income remains a larger share—about 70% to 80%—compared with roughly 30% in foreign banks. In addition, administrative interventions such as rate caps or policy directives can make the linkage between the two markets more complex.

Potential impact on banks’ margins

According to Nien, the biggest impact of interbank rate fluctuations is pressure on banks’ net interest margins as funding costs rise. This could encourage some lenders to diversify income, including by strengthening consumer lending or expanding investment and service activities.

Outlook for rates

Shinhan Securities expects interbank rates to ease slowly in the near term, potentially staying around 6.8% to 7% for a one-month tenor. Household deposit rates are forecast to fluctuate around 7% to 9% per year, depending on the bank.

Given partial liquidity bottlenecks and tighter policy space tied to exchange-rate pressures, the overall rate level is expected to struggle to return quickly to pre-crisis lows.