Liquidity abundant, interbank rates fall deeply

04-Jun-2020 Intellasia | Dau tu Chung khoan | 6:02 AM Print This Post

Statistics of the analysis team of Saigon Securities Incorporation (SSI Research) showed that in the last week, the State Bank of Vietnam (SBV) net injected 11 trillion dong on the Open Market Operation (OMO) via 10.998 trillion dong of bill maturity and two billion dong of buying forward. The market liquidity remained very abundant; and interest rates almost levelled off at low zone, closing the week at 0.49 percent per annum on overnight term and 0.75 percent per annum on one-week term.

Thus, the interbank rates fell by 1.7 1.8 percentage points in only five months, bringing the interest rates to the lowest zone in the last four years. According to SSI Research, banks’ liquidity received strong support from 100 trillion dong of bill maturity. The value of bond in circulation at the end of May has shrunk to 27 trillion dong and most of them will mature this week (25 trillion dong). The amount of capital injection is expected to help maintain interbank rates at low level.

The cost of capital of dong dropped sharply. The trend on the interbank market also spread to the residential market. The deposit rates at some large private joint stock banks were adjusted down by 0.3 0.5 percentage point on terms of 12 and 13 months, and further by 0.3 0.5 percentage point on terms from six to less than 12 months.

From the beginning of the year until now, big banks have cut deposit interest rates by an addition of 0.6 0 0.75 percentage point on terms of less than 12 months (to four to 5.5 percent per annum) and 0.65 to one percentage point on terms of 12 and 13 months (to 5.7 6.2 percent per annum). Meanwhile, at banks with small market share, this interest rate cut is more modest (0.2 0.4 percentage point), widening the gap in deposit interest rates between bank groups to one 1.8 percentage points.

According to SSI, despite having advantages in interest rates, small banks’ credit growth is restricted, and their ability to absorb deposits is also limited. This bank group may also further reduce interest rates in the near future.

The credit demand in the economy is also directly affecting banks’ credit growth. Updated at the recent Annual general Meeting (AGM), representative of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) said that its outstanding credit continued to fall further after recording a negative growth of one percent by the end of the first quarter (Q1) 2020. Thanks to that, the Capital Adequacy Ratio (CAR) of VietinBank is less stressful with CAR calculated based on Basel II standards regulated in Circular 41 reaching 8.6%, slightly higher than the required limit of eight percent. The plan to increase capital is still being prepared in order to have available resources when credit demand recovers.

The dong interbank rates fell in the context when the US dollar interest rates were also sharply declining. The US dollar/dong interest rate difference on the interbank rate is currently very low at 0.4 percent per annum. Thus, SSI Research said that the complicated international developments may put certain pressure on the exchange rate.

However, SSI Research also mentioned that economic activities are recovering after Vietnam has well controlled the epidemic. The positive domestic sentiment and stable foreign currency supply and demand will be the factors that keep the US dollar/dong exchange rate fluctuating at the current level.

The dong has appreciated by about 0.6 percent against the US dollar throughout May. This is the second month of strong recovery, in which it regained almost all the value lost in the March wave. From the beginning of the year, the dong has only depreciated against the US dollar (negative 0.47%) and Japanese yen (negative 1.34%), while appreciated against the Chinese yuan (1.97%), Korean won (5.78%), British pound (6.35%) and euro (0.51%).

On the opening of the first trading day of June 2020, the US dollar depreciated significantly against strong foreign currencies. The US dollar index, which measures the strength of the greenback with a basket of six other currencies sometimes fell below 98 points, the lowest level since mid-March.

The SBV in the morning of June 2nd also cut the central referent exchange rate by up to five dong to 23,256 dong per US dollar. At Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), the US dollar/dong exchange rate was listed at 23,170 dong per US dollar (buying) and 23,350 dong per US dollar (selling). The US dollar selling rate was even lower at other banks, fluctuating at around 23,335 23,340 dong per US dollar.


Category: Finance, Vietnam

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