Contrary to tensions in the last two weeks of August, the liquidity of the banking system showed redundancy in early September. According to Bao Viet Securities Joint Stock Company (BVSC), in the first week of September, The State Bank of Vietnam (SBV) only injected 988 billion dong through the offering of valuable papers. However, the amount of matured capital through this channel amounted to 13.134 trillion dong, which meant SBV net withdrew to 12.145 trillion dong.
The surplus was getting bigger and bigger, so in the following weeks, SBV stopped buying bonds and even reissued bills to withdraw money quickly. Specifically, during the week of September 9 to 13, SBV did not offer to purchase valuable papers nor issue treasury bills. Only 988 billion dong of valuable papers matured, which meant SBV continued to attract 988 billion dong this week.
However, in the following week (September 16 to 20), SBV must issue bills to withdraw money quickly. For the whole week, 68.997 trillion dong was issued via treasury bills. Thus, since the beginning of September, SBV net withdrew 82.131 trillion dong after net injected 69.1 trillion dong in August.
Meanwhile, interbank interest rates continued to fall. Closing the previous trading week, the interbank dong interest rates were traded around 2.26 percent (down 0.52 percentage points compared to the previous week), one-week term 2.5 percent (down 0.46 percentage points), two-weeks term 2.78 percent (down 0.44 percentage points), one-month term 3.22 percent per year (down 0.32 percentage points).
Compared to the end of August, the overnight lending interest rate was 2.16 percentage points lower; the rate for one-week term interest rate was lower than 2.1 percentage points, two-week term was less than 1.97 percentage points, and the one-month term was 1.4 percentage points lower.
Interbank interest rates dropped sharply due to SBV’s decision to reduce operating rates and abundant system liquidity, MB Securities Joint Stock Securities Company (MBS) said.
Meanwhile, the interbank US dollar interest rate did not have much fluctuation. At the end of the week, US dollar overnight lending rate stood at 2.23 percent; US dollar interest rate for one-week term stood at 2.28 percent, two-weeks term was at 2.37 percent, and one-month term was 2.47 percent. Accordingly, the interest rate gap between dong and US dollar in this market had narrowed significantly.
Which cash flow supported liquidity?
What is the reason for the liquidity of the banking system to be reversed so quickly? According to a banking expert, to have a better understanding of this problem, it was necessary to consider one more factor, which was the exchange rate.
In theory, the liquidity of any currency is redundant, that currency will depreciate. However, dong tended to increase in recent sessions, although dong liquidity was very abundant.
Indeed, the central rate had just been reduced by the second session in a row by SBV with the same decrease of 5 to 23,137 dong per US dollar. US dollar buyingselling prices of banks also dropped by 5 to 10 dong compared to the end of last week and decreased by about 30 dong compared to one week ago. Currently, US dollar buying prices of banks fluctuated between 23,120 dong and 23,140 dong per US dollar; while selling price was in the range of 23,250 to 23,270 dong per US dollar.
Only SBV’s foreign currency purchase could explain these abnormal situations, the expert said. SBV’s acquisition of foreign currency also meant that a large amount of dong would be injected into the market, causing dong liquidity of banks to become redundant.
This idea was not unwarranted when the supply of foreign currencies was currently abundant due to the trade balance suddenly surged to $3.43 billion in the last August, even doubled the surplus of the first seven months of the year. While disbursed foreign direct investment also reached $12 billion in the first eight months of the year, indirect investment reached $9.51 billion, and so on.
Although interest rates in the interbank decreased, which made the cost of holding foreign currencies cheaper. However, favourable factors, such as foreign exchange reserves had been improved; the trade balance, the investments capital, and remittances were quite positive, would create a good supply of foreign currencies in the near future, SSI Securities Corporation said.
However, despite the abundant liquidity of the banking system, it was challenging to support much for the current mid- and long-term capital thirst for banks. Therefore, mobilising interest rates in the market one remained at a high level, even tending to increase in the long term. Currently, banks started paying interest rates of up to eight percent for six-month terms.
Another problem warned by the expert was that the system’s liquidity might reverse in the last months of the year. That was partly because credit demand often increased during this period. Additionally, it was likely that SBV would be forced to sell foreign currencies to avoid being labeled ‘currency manipulation’ by the US as many organisations noted before.
