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| SBV pumps $789m into market to ease inter-bank rate |
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09-JAN-2010 Intellasia | Vietnamnews |
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9 Jan, 2010 - 7:00:00 AM |
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The State Bank of Vietnam has pumped 15 trillion dong (US$789.47 million) through open market operations to cool down an over-heated interest rate on the inter-bank markets where some banks are struggling to accumulate capital.
Commenting on the move, head of Monetary Policy Department of the central bank Nguyen Ngoc Bao said: "Injecting capital through open market operation is a very normal activity for a central bank to balance supply and demand."
I Some banks report that after the initiative, the inter-bank rate was lowered to below 12 percent for short capital, 11 percent for week capital, and 8.5 percent for overnight loans.
The central bank aims to bring the inter-bank interest rate down to around 9%.
I have been said to illegally rise to 16-17 percent per year for two-week to three-month terms. Normally, inter-bank rates were equal to or slightly higher than the refinance interest rate, which currently stands at 8 percent.
"The pumping of the central bank helps ease off a lack of liquidity in many banks," said Nguyen Thanh Toai, deputy general director of Asia Commercial Bank.
Last month, rumours had it that the central bank had injected about 30 trillion dong ($1.5 billion) to support banking liquidity but the central bank denied the bank bailout.
Associate Professor Tran Hoang Ngan at the HCM City Economics University assumed that the lack of liquidity was because banks used up their financial capacity in 2009, especially on the economic stimulus package, and because the speed capital circulating back to banks remained slow.
The Vietnam Bank Association (VNBA) general secretary Duong Thu Huong noted that capital always became scarcer in the latter part of the year, when many firms borrow to payoff loans and settle contracts. "We call1his capital tension a seasonal capital shortage"
In an attempt to attract capital to balance liquidity, some banks are said to have negotiated deposit interest rates with customers bC10nd the 10.49 percent cap set by the central bank and the VNBA.
"We have measures to rationalise financial sheets for these cases," said a bank official who asked to be unnamed, adding: "However, the lack of liquidity at this time is just temporary. After Lunar New Year, everything will be ok."
While banks and customers under the table push deposit rates beyond recommended levels, lending rates now are officially frozen at 12%. That means banks are being squeezed for profits at the very least, with some even posting losses if they entirely comply with the cap.
Commenting on the issue, Le Xuan Nghia, deputy head of the national financial supervisory commission, said: "The market always acts based on its rules. If the market operates normally, interest rates will reflect true capital costs. If there is something unusual, the market itself will adjust.
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