Many banks withdraw deposits from the State Bank of Vietnam

25-Nov-2020 Intellasia | Dien dan Doanh nghiep | 6:51 AM Print This Post

Q3/2020 financial statements of banks showed that the number of deposits at the State Bank of Vietnam (SBV) of many banks declined dramatically.

According to statistics at 28 commercial banks, these banks’ deposits at SBV decreased by 37 percent in the first nine months of this year, currently at only 227.634 trillion dong. 17 out of 28 banks recorded a decrease of 18 percent to 82 percent compared to the beginning of the year. Typically, An Binh Commercial Joint Stock Bank (ABBank)’s deposit at SBV decreased by 82 percent to 1.207 trillion dong. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)’s deposits at SBV decreased by 70.2 percent to nearly 40.356 trillion dong. Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank)’s deposits at SBV also decreased by 70.1 percent to 1.937 trillion dong.

Not only reducing deposits at SBV but some banks also significantly reduced deposits at other credit institutions. Accordingly, the above banks’ deposits at other credit institutions decreased by 10 percent compared to the beginning of this year, to only 817.847 trillion dong. In which, the most significant drop was LienVietPostBank (73%), National Citizen Commercial Joint Stock Bank (NCB) (68%), Orient Commercial Joint Stock Bank (OCB) (65%).

This was a remarkable phenomenon when banks’ credit growth was sluggish and was not expected to return soon when production and business activities were still facing many difficulties because of the COVID-19 epidemic. Meanwhile, customer deposits in the first nine months of this year, despite a lower growth rate than the same period last year, was still better than the growth rate of credit. As a result, the banking system’s liquidity was quite large redundant, reflected through the continuously decreasing interbank interest rates and currently standing at the lowest level in many years.

However, that was not difficult to understand. Although the bank liquidity was redundant, it was not evenly distributed. Some banks had much redundancy, and some others had little redundancy, some even lacked liquidity. The reason was that although the credit growth of the whole system only increased by 6.09 percent in the first nine months of this year, many banks still maintained a relatively high credit growth, even higher than the rate of mobilised capital growth.

For example, at LienVietPostBank, in the first nine months of this year, the bank’s customer loan balance increased by 15%, while customer deposits only increased by 13.25%. Vietnam Maritime Joint – Stock Commercial Bank (MSB) even recorded an increase of 15.46 percent in customer loans in the first nine months of this year, but customer deposits decreased slightly.

Obviously, the higher credit growth than the mobilised capital would increase the risk of a temporary shortage of banks’ liquidity as most customers’ deposits were of short term, even payment deposits. The risk was greater when the bad debt tended to increase because of the COVID-19 pandemic.

Indeed, the financial statements of the first nine months of this year of most banks recorded a substantial increase in bad debt. For example, LienVietPostBank’s total bad debt balance increased by 28 percent in the first nine months of this year to 2.611 trillion dong. Therefore, the non-performing loan (NPL) ratio would also increase from 1.44 percent at the end of 2019 to 1.64 percent at the end of September 2020. The NPL increase also meant that a large amount of banks’ capital had been frozen in these debts.

Experts also forecasted that the liquidity of the banking system would be increasingly difficult. The evidence was that banks had also no longer strongly bought government bonds, causing the winning rate in recent government bond auctions to drop sharply compared to September 2020. Interbank interest rates were also forecasted to increase slightly in the last few months of this year when market liquidity was less abundant.

Regarding the withdrawal of money from SBV in the first nine months of this year and liquidity, there was another reason that banks were trying to maximise profits to compensate for a decline in income from credit. The deposit interest rate exceeding the compulsory reserve still maintained at zero percent, meaning that deposits exceeding the required reserve had no profitability. Thus, many banks had chosen to withdraw deposits at SBV to switch to other investment channels, including bond channels.

In fact, the buying in government bond was boosted, the amount of corporate bonds held by many banks also increased sharply during this period. According to SSI Securities Company, in the first nine months of the year, the amount of corporate bond issued on the market would increase by 79 percent compared to the same period last year, reaching 341 trillion dong. Despite the skyrocketing circulation, the successful issue rate was 98%, much higher than the 93 percent figure of the same period last year. In which banks were still the biggest buyers of corporate bonds in the market.


Category: Finance, Vietnam

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