New signals, new expectations appear in the liquidity of the banking system

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

On November 25, the open market appeared the first transaction, as a start of the end of the year peak season. Specifically, in the bidding for lending via the open market operation (OMO), the session on November 25 noted that the first member had access to tremendous support from the State Bank of Vietnam (SBV).

This transaction had a scale of 4 trillion dong, in a seven-day term, and with an interest rate of 4.5 percent per year.

Thus, the source of support through the above transaction was a continuation of the systemic liquidity trend showing signs of tension in the past week. Dong interest rates continued to rise sharply and hit a high level in the interbank market. SBV stopped withdrawing money by stopping the issuance of treasury bills and net injecting quite strongly again.

Only with this first transaction, as well as only one member had access to the support channel via OMO that day, so it was impossible to predict the expansion trend. However, with the overnight dong interest rate nearly doubling after just one week, the large net injecting activity of SBV showed that the system liquidity was not so abundant as before.

On the one hand, the market and banking activities, in general, began to enter the peak season of payment, end of the year payment, and increasing capital demand. At this time last year, SBV had to support by additional loans of about 60 trillion dong.

On the other hand, according to the analysis of the leader of a commercial bank when sharing with BizLIVE, after the State Treasury’s payment deposits were transferred to SBV instead of depositing at big banks as before, liquidity and the system temporarily absented a source for conditioning.

Accordingly, the source of money transferred to SBV, this clue would show and further promote its regulatory role. In the support channel, traditionally and currently, the primary source of channel was still through OMO.

To regulate more effectively, the bank representative told BizLIVE that banks were also expecting SBV to continue lowering OMO interest rates, after dropping the deposit rate ceiling and many members reducing lending rates recently.

The OMO interest rate maintained at five percent for five years. In January 2018, SBV firstly dropped to 4.75 percent per year, and the next drop was on September 16, to 4.5 percent per year.

That was considered a key interest rate in the interbank market. Because when banks found it difficult to borrow loans to offset interbank liquidity, which led to higher interest rates, they could expect SBV to borrow at the current rate of 4.5 percent per year to take the initiative in expenses.

With the OMO interest rate cut in September, the value that helped minimise costs for banks when approaching this channel began to show, especially when starting the transaction and entering the peak season of the year.

As mentioned above, new expectations were set, SBV might consider reducing this interest rate further, as a support for source costs, together with the recent policy contributing to stabilising interest rates in the market, including loan rates.


Category: Finance, Vietnam

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