Insurance companies will have the chance to earn higher profits in 2023 thanks to a continual interest rate hike trend.
It is feasible for insurers to continually increase profits this year as the majority of their investment portfolios are bank savings and government bonds, whose interest rates are forecast to remain at high levels in the year.
According to the current legal regulations, insurers have to use at least 70 per cent of their capital to deposit at banks or buy government bonds to ensure the insurers’ capital safety. Therefore, the current high interest rates of the two channels are an advantage for insurers to increase their profits.
As the interest rate hike trend is forecast to remain in 2023, financial activities of insurance companies are expected to continually record positive results this year.
The US Federal Reserve (Fed) last year raised interest rates by a total of 4.25-4.5 per cent per year to curb inflation, the highest rate since January 2008. Fed is expected to continue increasing interest rates in the first quarter of 2023.
The Fed’s interest rate hike caused the money flows to change. Investors have gradually withdrawn in most of the emerging and frontier countries and returned to the US. This pushed the US dollar Index to 104.2 points on December 27 last year, up by 8.6 per cent compared to the beginning of 2022.
Facing the pressure of local currency devaluation, as well as the withdrawal of investment flows, most countries have had to raise interest rates. Việt Nam is no exception, especially when the market is thirsty for capital with the credit growth increasing faster than the capital mobilisation growth. To cope with the difficulties, the State Bank of Vietnam (SBV) increased policy interest rates twice in September and October 2022, by 1 per cent per year each time.
Under the SBV’s move, the interest rates for 12-month term deposits at banks in 2022 increased by 2-4 per cent per year on average. For example, the 12-month interest rate at BIDV is currently 7.4 per cent per year from 5.5 per cent at the beginning of 2022. Similarly, the rate rose from 5 per cent to 9.1 per cent per year at VPBank, from 5.8 per cent to 8.9 per cent per year at Sacombank, from 5.5 per cent to 7.4 per cent per year at Vietcombank.
The savings interest rates are forecast to remain high or even increase higher in the next six months to 12 months.
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