Banking activities in Vietnam did and would have to be repositioned, even strategically, after a series of policy articles.
In an internal forecast released this week, several market research officials at commercial banks had the same estimate. At the end of this year, one-week dong interest rates on the interbank market would continue to anchor at a high level, about 4.1 percent to 4.5 percent per year. The liquidity balancing cost of banks that needed this channel would increase, approximately double compared to the beginning of Q3/2019.
Part of this was due to the end of the year seasonal factor. However, another impact was the transfer of the source of payment deposits from the State Treasury to the State Bank of Vietnam (SBV). The term deposit of this organisation also did not spread out permanently and actively at related banks as before. The fall of deposit sources had caused shocking interest rates in the interbank market.
It was a typical change of policy that had just happened, in a series of recent adjustments, and would have a profound impact on system performance.
At the end of the year, SBV focused on handling the backlog progress of completing the policy mechanism. A new series of documents had been issued, covering a wide range of activities of many fields and aspects of credit institutions’ operations.
These were new rules on payment intermediaries, e-wallets, on consumer loans, consumer lending limits in cash, and on the mechanism and purpose of refinancing mortgages. Primarily, SBV had issued the final provision on the roadmap for implementing new limits and safety ratios in the operation of credit institutions, which highlighted the limitation on the rate of short-term capital to medium and long-term loans, raised high-risk coefficient to target groups related to real estate.
On the one hand, even in terms of directional information, the market had to reposition itself from those impacts. After a month of promulgation, these policies still caused many concerns, discussions, comments, and arguments on the effect of information flow in the market, implying that the activities of related entities would change.
That change was even strategic, or its operational strategy was forced to change.
For example, in terms of consumer finance companies, new regulations, new limits on cash loans, credit card limits had a profound effect on customers and could affect sales. It had to take a while to create a segmentation of products to rebalance.
Regarding commercial banks, the risk appetite must also change, as individual customer groups with large debit balance would be affected by a higher risk factor. Commercial banks would also have to relocate their asset structure.
Each credit institution was a big machine. Even with total assets of over 1 quadrillion dong, each change or shift segment to reposition according to policy adjustments would take time, and be hard to flexible right away. The policy also had a roadmap. Accordingly, this repositioning would be gradually showed over time.
What’s next?
For the market, after the decision to simultaneously reduce the operating rates in September 2019, the reasonableness and anticipation were set in the context of the trend of interest rate easing reflected in the world. When measuring in advance, the subjects in the market could be proactive in adjusting behavior and adaptation.
Recently, just before the peak season of payment at the end of the year, as well as before the trend of increasing interest rates with some tension at many commercial banks, SBV suddenly lowered the ceiling interest rates on deposit, interest rates, and lending interest rates for some target groups.
Shortly after that, interest rates on the open market operation (OMO) also fell sharply and decisively, from 4.5 percent per year to four percent per year, because this interest rate used to be very fixed in many years.
The interest rate reduced, exchange rates might affect the direction that the local currency would depreciate. However, currently, there was one more remarkable adjustment. SBV sharply reduced the purchase price in the US dollar. This movement made the foreign currency trading activities of banks recalculated. There was also an opinion that if the operator did not list the current buying price, the exchange rate would fall, and dong would appreciate.
A series of important interest rates had been adjusted. The source balance component had also changed (the State Treasury deposits). Markets and capital channels had also changed, even fluctuated sharply or reversed as on interbank, the capital was injected and withdrawn via OMO.
As above, although the series of policies had just been promulgated, adjusted and implemented, they had been discussed for the whole month. In turn, the question of what would happen next became more and more critical. To answer this question, each entity in the market needed to be more initiative, even ahead of or to create reasonable pioneer behaviour.
In the near step, 2019 was coming to an end, 2020 was near. This time-transition milestone became vital because, as a new year entered, the targets would also be changed, many limits would be refreshed to open up new revolutions.
