Concerns about bank liquidity still exist

08-Jun-2016 Intellasia | Dau Tu Chung Khoan | 6:00 AM Print This Post

According to forecast of the Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the dong interest rates on the interbank market are likely to increase again in June 2016, although the credit growth in the first five months of the year was lower than mobilisation growth in the period. The worry about liquidity always exists, not only because of the exchange rate pressure and the credit growth target of 18 -20 percent in 2016.

Report on the Marco-economy for May 2016 of BIDV’s Research centre announced that the interbank interest rates in dong significantly fell in May 2016 with fairly abundant liquidity. Since credit institutions (CIs) strongly promoted supply, interest rates deeply declined because credit growth recorded no significant change (only 3.57 percent while mobilisation growth was 4.5 percent in the first four months of the year).

Meanwhile, the State Bank of Vietnam (SBV) continued to inject dong via foreign exchange (forex) channel with over 72 trillion dong in April and May 2016 (as of May 20th 2016). However, BIDV believed that the interbank interest rates will increase again in June because SBV has temporary stopped the money injection. In the long term, the interest rate pressure will become larger when credit activity is under the pressure to grow by at least 18-20 percent in 2016.

BIDV’s report added that the mobilisation interest rates are likely to rise again to partly ensure liquidity for lending and to partly compete with the government bond market and inflation developments.

Analysing that the role of interbank market are mainly to serve the compulsory reserves and temporarily offset liquidity of banks, and adding that the capital needs of some banks may pull up interbank interest rates, leader of the Orient Commercial Joint Stock Bank (OCB) said that the volatility of interbank interest rates in a short term is unlikely to reflect the actual situation of the market. In his point of view, banks’ liquidity remains normal, capital inflows still increase and there is no special change. OCB is even lowering mobilisation interest rates because the bank’s liquidity is still in excess.

In a different perspective, a director of currency trading of a bank said that in the last week, SBV almost continuously withdrew the volume of dong that was injected for buying US dollars via the issuance of bills with a total value of about 33 trillion dong. The dong interest rates have begun to rise. Particularly, overnight interbank interest rate has jumped to 2.5 percent per annum while it was only 0.5 to one percent per annum in the previous week. This director added that SBV withdrew money because the exchange rate is appreciating. The dong/US dollar exchange rate soared to the highest level of 22,490 dong per US dollar from a stable level of 22,300 dong per US dollars. After the money withdrawal of SBV, in the last week, exchange rate has cooled down to 22,415 to 22,420 dong per US dollars.

The liquidity problem in the banking system often associates with the bad debt issue and weak banks. The bad debt ratio of the system has been lowered to the safety threshold of less than three percent from the fourth quarter of 2015. However, Chair of the National Financial Supervisory Committee Vu Viet Ngoan pointed out that although the bad debts in the balance sheets of banks are currently just 120 trillion dong, the bad debts located at the Vietnam Asset Management Company (VAMC) reaches up to 245 trillion dong and banks still have to provision for the risks of these debts. Moreover, in 2015, the high growth of credit at 19 percent also led to bad debt arising of up to 45 trillion dong.

In Directive 04/CT-NHNN on solutions to operate monetary policy and banking activities in the last months of 2016 issued in late May 2016, SBV’s Governor has requested CIs to actively balance the capital sources and the use of funds to ensure liquidity, stabilise mobilisation interest rates and be able to lower lending rates; and to focus on liquidity risk management, risk of term and currency difference in order to ensure safe operation, etc. In addition, CIs should further carry out the restructuring plans, conduct measures to settle bad debts and strive to sustainably control bad debts of the entire system at below three percent.

At the meeting with Victoria Kwakwa – Regional vice President of the World Bank for East Asia and Pacific in the end of last week, deputy prime minister Vuong Dinh Hue affirmed that Vietnam particularly focuses on tackling bad debts in a more substantive way, on promoting the restructuring of CIs and effectively handling weak units.

 


Category: Finance, Vietnam

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