‘Domestic USD supply slows down, putting the brakes on buying for reserves’

12-Jun-2019 Intellasia | Vietnam Finance | 6:00 AM Print This Post

According to the Vietnam Financial Market Report in May 2019 announced by SSI Securities Company, the USD/VND exchange rate created the first wave since the beginning of the year.

Specifically, under the impact of international developments, the exchange rate of USD/VND last month fluctuated quite strongly, increased by 130 dong per US dollar in the bid price and 150 dong per US dollar in the ask price in the interbank market, up to 23,360/23,480; and an increase of 90 dong per US dollar in the free market to 23,415/23,430.

Thus, within one month, the dong depreciated by 0.6 percent against US dollar, a relatively large fluctuation after four months of stability but still less than the devaluation of most of currencies in the region such as in China, India, Malaysia, Singapore and Philippines.

In May, the central exchange rate also increased by 37 dong per US dollar, equivalent to 0.16 percent.

“Unlike the sideways movements in the first four months of the year and rising trend from the end of April until now of the exchange rate, the central exchange rate has continuously increased since the beginning of the year, the total increase is 1.05 percent, ensuring a wide enough margin for exchange rate fluctuations, thereby demonstrating the initiative of the State Bank of Vietnam (SBV) in managing exchange rates when the market is affected by unpredictable factors from outside “, SSI evaluated.

In addition, in the previous month Vietnam has been in the list of US supervised trading partners along with eight other countries: China, Japan, Korea, Germany, Italy, Ireland, Singapore and Malaysia but no country is currently considered to be a currency manipulator.

US as lowered its standards for the list of countries subject to surveillance. Specifically, it lowered the payment balance surplus criterion of more than two percent of GDP (instead of three percent as before) and the criteria of net buying of foreign currencies for at least six over twelve months (instead of eight over twelve months as before).

Except China who meets only one criterion, Vietnam and seven other countries all satisfy criteria of trade balance surplus and current payment balance.

“The possibility of Vietnam being attached to the currency manipulation by the US in the next review is very low because the domestic supply of US dollar is no longer abundant as before, which makes it difficult to continuously buy US dollar for foreign exchange reserves. The financial and monetary market will therefore not be affected by currency manipulation stories, at least this year, “SSI said.

In May, SBV net withdrew 35.1 trillion dong. However, abundant liquidity in the interbank market caused interbank interest rates to decline gradually.

Specifically, the overnight interest rate dropped from 3.6 percent per year at the beginning of the month to 2.87 percent on May 30, 2019the lowest level since October 2018 until now. The difference between the interest rates in dong and US dollar has now been relatively low, at 0.6 percent per year for the overnight term.

“In the context of rising exchange rate pressure from international developments, maintaining interest rate stability in the inter-bank to ensure the difference between the interest rates in dong and US dollar is positive, which will be an important factor to stabilise foreign exchange market. It is likely that interest rates in dong in the interbank will be kept at 3.3-3.5 percent per year to be greater than the rates in US dollar of about 0.8-1 percent per year “, SSI said.

For market 1, deposit rates are still quite stable at 4.1 percent5.5 percent with terms of less than six months, 5.5-7.45 percent with terms of six to less than 12 months.

However, the 12 and 13-month terms record a mixed adjustment in banks. Some major banks adjusted down by 0.3-0.4 percentage points, but there were also banks that adjusted to increase by 0.2-0.3 percentage points. The current interest rate is quite different among banks, fluctuating in the region of 6.4 percent -7.8 percent per year.

“We still keep our point of view that deposit rates are stable at current levels because commercial banks need to ensure sufficient sources to carry out credit growth targets in the context of competing with other investment channels which develop quite fast (bonds and fund certificates) and the need to increase mobilisation balances to meet the roadmap of continuing to reduce short-term capital for medium and long-term loans from the current 40 percent to 30 percent “, SSI emphasizes.

This securities company believes that boosting lending to individual customers with better interest rates will be the basis for commercial banks to maintain the current deposit interest rates without affecting profit.

For lending rates, although deposit rates started to rise and set new ground for nearly six months, the lending interest rate for production and business activities is still relatively stable, not to mention there are some loan package incentives for certain industries in major banks.

“2019 profit plan of 17 listed banks only increased by 18 percent compared to 2018, much lower than the increase of 31 percent in 2018 while the number of banks reached or set the Basel II standard increased, showing that commercial banks have focused more on sustainability rather than following short-term growth. Expanding revenue, changing customer structure and managing cost effectively will be prioritised instead of increasing lending rates “, SSI said.

 


Category: Finance, Vietnam

Print This Post