Interbank rates are falling in step with improved bank liquidity, lower demand for credit, risk-averse banks and State Bank bills.
Latest State Bank figures show interbank lending rates were well down from the beginning of the year. The overnight and one-week rates on March 22 were down by 0.7 and 0.96 per cent against March 16 respectively, or 11.01 and 10.07 per cent. The one-month rate was 11.61 per cent, down 0.98 per cent. The 12-month rate was down to a low 8 per cent.
The lower interbank rate resulted partly from improved banking system liquidity after customers, who had made withdrawals for end of the year consumption in 2011, re-deposited because they believed the State Bank would not allow any banks to go bankrupt. Total deposits until February 20, 2012 were up 1.66 per cent on-month, with VND deposits 2.24 per cent higher.
Lower demand for credit is also a reason behind the lower interbank rate. Tran Phong, head of research at leading brokerage Saigon Securities, said economic stagnance with many enterprises declaring bankruptcy in the first months of this year led to lower credit demand.
“Moreover, due to the low seasonal credit demand from enterprises, inflow capital is better but the outflow is congested [and this] means banks are less involved in lending on the interbank market,” said Phong.
According to a survey by the Vietnam Chamber of Commerce and Industry (VCCI), up to the middle of March, some 70,000 enterprises had closed shop. The low demand for borrowing in interbank market was reflected by the much lower trading volume. The trading volume for overnight and one-week terms on March 22 was VND23,446 billion ($1.1 billion), while on March 16, this figure was six times higher at VND140,178 billion ($6.73 billion).
Interbank market bad debts are also preventing banks from more active participation on the interbank market. “Large banks with surplus capital do not want to lend much as the [situation with] bad debts on the interbank market has not improved,” said Luu Hai yen, analyst at Thang Long Securities.
Senior advisor to top-tier bank BIDV?Can Van Luc said banks still required collateral assets to ensure credit safety when lending on interbank market as some banks’ business performances were still volatile. But, Yen emphasized the problem of interbank bad debts would soon be dealt with when banks were merged.
Le Quang Trung, deputy director of private Vietnam International Bank (VIB), said banks could buy State Bank bills to offset banks’ mobilisation costs. In mid-March, the State Bank issued 28-day, 92-day and 182-day bills with rates of 11.5, 12 and 12.5 per cent, respectively.
“Such rates may be lower than interbank rates, but interbank lending involves higher levels of risk. With the balance of profit and risk, banks must think hard about lending on the interbank market,” added Trung. Interbank market members are now mostly large and healthy banks so the negotiated rate was low as the banks had good liquidity.
Meanwhile, weak banks in great need of capital are receiving special loans from the State Bank thanks to the newly-issued Circular 06/2012/TT-NHNN. The circular says the State Bank ank will approve special loans for local banks or request other stronger banks to finance these banks with poor liquidity. Banks are only allowed to use the special loans to pay individual depositors.
In some cases, unpayable special loans can be converted into contribution capital or stakes the creditors hold at these debtors being subject to prime ministerial approval.