The central bank’s efforts to pump money to meet the market demand has eased the fever of interbank market’s short-term interest rates during the last one week, however the risk that interest rates could surge again by the year end is at high.
On November 21 when some state banks offered to lend loans in the open market at a high interest rate, especially Agribank provided a loan with a term of one week at 17% per annum, marking the highest level in Vietnam’s monetary history. This showed that borrowers were suffering the scarcity of capital and had to accept an interest rate much higher than ordinary level. Therefore, SBV had to supply about 11.5 trillion dong to commercial banks through buying back their T-bonds and valuable papers at 8% per annum.
The interest rate was reduced to 13-14% per annum just on the following day. On November 23, the overnight interest rate in the interbank market stopped at 10-11% per annum, but it remains higher three times against the level few weeks ago.
As for lenders (state owned banks) in the interbank market, they are afraid of potential risks in transparency of borrowers that are commercial joint stock banks.
In the current context, commercial joint stock banks that have a low transparency willingly pay a fair high interest rate to borrow loans from state owned banks, a chair of state bank said.
Factually, the shortage of the dong only appeared in small sized banks, branches of foreign banks and some state banks. As a result, many banks with a glut of capital earlier purchased too many T-bonds without adequate risk evaluation. When the demand for payment increased, these banks’ transparency reduced in a short time due to lack money. Meanwhile banks were ordered to reach their compulsory reserve ratio at 10% so they accepted to borrow loans at high interest rates.
However, when the interest rate is pushed up, lenders with a huge capital supply also do not want lend loans for a fear that borrowers could not repay debts. Therefore, banks in need of capital had to ask for SBV’s help.
In fact, the central bank wants to limit the money amount pumped into the monetary market but as the market is overheated, they had to intervene.
In principle, SBV can repurchase valuable papers as short-term solution and withdraw money few weeks later. If not, the interbank interest rate could surge again, confirmed a representative from a commercial joint stock bank.