Banks increase mutual borrowing for short-term capital needs

28-Nov-2019 Intellasia | VnEconomy | 6:02 AM Print This Post

After being maintained at a low level of around two percent per annum, the dong interest rates on the interbank market for terms of less than one month unexpectedly surged in the last week. Notably, this development coincided with the time when the State Bank of Vietnam (SBV) started to apply a new deposit interest rate ceiling for commercial banks.

Statistics on capital market of the week from November 18th to 22nd recently released by the Economic Research centre of Maritime Commercial Joint Stock Bank showed that the average interbank interest rates in dong sharply increased across all terms from one month or less in most sessions, especially the last two sessions of the week.

With stable liquidity, the dong interest rates on the interbank market were maintained at low level (about two percent on overnight term and one-week term) from the first half of September 2019 to November 15th 2019.

Specifically, in the week of September 30th October 4th, the interbank rates for terms of overnight, one week and two weeks respectively reached 1.85%, 2.15 percent and 2.4 percent per annum. In the week of October 28th to November 1st, the overnight, one-week and two-week interbank rates were respectively 1.45%, 1.65 percent and 1.9 percent per annum. These rates in the week of November 4th to 8th increased to respectively 1.95%, 2.15 percent and 2.15 percent per annum.

In the week of November 11th 15th, the interbank rates continued to be maintained at low levels. In the last session of the week, the rates were respectively 1.84 percent per annum on overnight term, 2.14 percent per annum on one-week term, and 2.32 percent per annum on two-week term.

In the session on November 18th, the average interbank rate in dong recorded a decline of 0.02 0.08 percentage point across all terms of one month and less compared to the last session of the last week, specifically reaching 1.82 percent on overnight term, 2.12 percent per annum on one-week term, 2.28 percent per annum on two-week term, and 2.52 percent per annum on one-month term.

In the November 19th session, (the date the SBV started to lower the maximum dong deposit rate of credit institutions (CIs) and the maximum dong short-term lending rate of credit institutions (CIs) for some industries and economic sectors), the interbank interest rates increased again by 0.01 0.26 percent per annum across all terms from one month and less, reaching 2.08 percent per annum on overnight term, 2.23 percent per annum on one-week term, 2.33 percent per annum on two-week term, and 2.53 percent per annum on one-month term.

The interbank rates in dong continued to go up in the next session (November 20th) with a strong increase from 0.19 to 0.29 percentage point across all terms of one month or less, compared to the previous session. Specifically, the rates were 2.37 percent on overnight term, 2.43 percent per annum on one-week term, 2.53 percent per annum on two-week term, and 2.72 percent per annum on one-month term.

Particularly, in the two sessions on November 21st and 22nd, the dong interbank rates experienced very sharp increase. Specifically, the average dong interbank rate on November 21st soared by 0.43 to 0.76 percentage point across all terms of one month or less compared to the previous session, with overnight rate reaching 3.07 percent per annum, one-week rate reaching 3.19 percent per annum, two-week rate reaching 3.2 percent per annum, and one-month rate reaching 3.15 percent per annum.

In the last session of the week (November 22nd), the interbank rate further increased by 0.38 0.57 percentage points to 3.45 percent per annum on overnight term, 3.6 percent per annum on one-week term, 3.68 percent per annum on two-week term, and 3.72 percent per annum on one-month term. Thus, compared to the last session of the previous week, the overnight rate increased by 1.61 percentage points; while one-week, two-week and one-month rates respectively increased by 1.46 percentage points, 1.36 percentage points, and 1.12 percentage points.

Explaining the sudden increase in interbank interest rates in recent days, experts said that interbank rates often increase at the end of the month, especially when the market enters the peak season at the end of the year.

Can Van Luc, Chief Economist of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) believed that the interbank rate rise in recent time is normal for the market and related to seasonal factor. Moreover, the interbank rate increase recorded at the time the SBV reduced short-term deposit rate cap of CIs is only a coincidence and not worrisome.

In fact, the liquidity of the banking system is still in a very good status. That is also the premise for the SBV to reduce the dong short-term deposit rate cap of CIs and dong short-term lending rate cap of CIs for some industries and economic sectors.

Certainly, the rise of interbank rates in recent days may be related to the SBV’s issuance of Circular 22/2019/TT-NHNN regulating the safety limits and ratios in the operations of banks and foreign bank branches.

“Interbank market is where banks is a place where banks borrow from each other. Due to seasonal factor, some banks may increase borrowing to meet the requirements of Circular 22 recently issued by the SBV,” expert Luc emphasized.

Sharing similar view, banking and finance expert Nguyen Tri Hieu said that the sharp rise of interbank rate in the recent time is normal and fluctuate according to market supply and demand.

The interest rate fluctuations in the interbank market do not represent a common interest rate level for the economy. Because, the capital flows on the interbank market are very short-term flows and address urgent capital needs of commercial banks, particularly the demand for compulsory capital reserves.

 


Category: Finance, Vietnam

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