Some bankers have anticipated that the central State Bank of Vietnam (SBV) will hike the required reserve ratio further in the wake of inflationary pressure. HSBC in its latest report dated August 1 forecast that the central bank will raise the ratio to 15% in the near term.
“With liquidity still surplus in the system on account of strong portfolio inflows and foreign direct investments, we think the SBV will raise reserve requirements further from the current 10% for dong and foreign currency deposits to as high as 15% in the near term.”
HSBC’s calculation also pointed out that the new five percentage point increase will help withdraw 24 trillion dong (US$1.5 billion) from the system.
The previous hike has lost its effectiveness, with surplus liquidity expanding again to an estimated 50-60 trillion dong, the British lender said. In late May, the central bank decided to double required reserves to 10% for dong and foreign currency deposits of less than 12 months and to 4% for those within 12 and 24 months.
Nguyen Phuoc Thanh, director of the HCM City branch of Vietcombank, said, “What we’re thinking of doesn’t exclude the possibility of a new hike in reserve requirements.” “If the central bank lifts the ratio, we should either raise lending interest rates or reduce deposits. The former will harm the economy, whereas the latter may result in funds sloshing around the system,” Thanh said. “So, whatever the central bank does, it must ensure sufficient capital for production activities to spur economic growth,” he added
Although a higher compulsory reserve ratio or any tightening credit controls are likely, Tran Xuan Huy, general director of Saigon Thuong Tin Commercial Bank (Sacombank), said he did not think there would be anew hike in required reserves. “It needs more time for the previous hike to take effect, and we think inflation will ease soon.” Huy added that commercial banks may feel a little impact of any new tightening policies because their funds are still plentiful.
But it is somewhat ironic that many banks are about to launch bonds to attract more funds. In July alone, four banks were allowed to sell bonds worth a significant 21.5 trillion dong in total. Earlier, Vietcombank and Citibank Vietnam received approval to issue debentures worth trillion dong and 4 trillion dong respectively.
So far, none of them have issued bonds but the Bank for Investment and Development of Vietnam (Bidv), which launched the long-term debt paper worth three trillion dong last month.
Banks’ mobilised funds from bond issues are exempted from required reserves but where to put the raised money is a big concern.