Liquidity was abundant, but banks could hardly lend due to low credit demand, leading to low credit growth. In the context of excessive capital but challenging to give, banks had increased their investments in government bonds.
During the week from June 15 to June 19, the State Bank of Vietnam (SBV) did not carry out any net pumping/withdrawing activities when there was no new issuance, and no amount of bills or Open market operation (OMO) matures. The amount of OMO and promissory notes also stood at zero.
Liquidity remained abundant, making interbank offered rates last week continue to decline at the overnight, one-week and two-week terms, respectively 0.05 percent per year, 0.03 percent per year and 0.06 percent per year, bringing interest rates for all terms to a record low of 0.13 percent per year, 0.23 percent per year and 0.33 percent per year. This was an unprecedented low interest rate area in the interbank market.
Therefore, SBV had not conducted new pumping/withdrawing activities in the last two months and might not carry out a net injection on the open market in the next few weeks when the liquidity was still very abundant, and the interbank offered rates constantly bottomed out.
Market one (business and residential sectors) was also quite calm. The deposit interest rates remained at 3.5 percent to 4.25 percent per year with terms of less than six months, 4.9 percent to 6.9 percent per year for six months to less than 12 months and 6 percent to 7.6 percent per year for 12-month term and 13-month term.
According to information from SBV, the credit growth of the whole industry from the beginning of the year to June 16, 2020 reached only 2.13%. Commercial banks often accelerated credit disbursement in the second half of June so the semi-annual growth target might improve, but it would still be far from the growth rate of 7.36 percent in the first half of 2019.
Demand to meet liquidity indicators at the end of the quarter might cause interest rates on the interbank to inch up this week. Still, the rate would remain low because the supply in the interbank market was plentiful.
Excess capital made it difficult to lend, so banks rushed into government bonds. Specifically, last week, the State Treasury issued 8.846 trillion dong of bonds in all four tenors called five-year, 10-year, 15-year and 20-year term. This was the largest issuance since the beginning of the year, with winning/bidding ratio was 93.3%, which was the highest level in the last three months.
Since the beginning of June, the State Treasury had issued a total of 22.114 trillion dong of bonds, equivalent to 120 percent of the issue in May and 41 percent of the total issuance in the first five months.
If all 8.5 trillion dong bid in this week’s auction were all issued, the total number of bonds issued in Q2/2020 would be 52 trillion dong completing 87 percent of the Q2 plan.
Liquidity improved on secondary market with total trading value of 41 trillion dong, up 13 percent from the previous week. Foreign investors net sold 79 billion dong after two weeks of strong net buying before.
Winning rates had improved in May and June when 80 percent and 90 percent respectively compared to 20 percent in April thanks to higher winning rates (almost equal to the secondary market interest rates).
Specifically, the interest rates of 10-year and 15-year government bonds in the primary market were only 0.01 percent per year and 0.02%/per year lower than the secondary market respectively. If the winning interest rate were maintained at the current level, analysts thought that the winning percentage might likely to remain high.
Nghiem Xuan Thanh, Chair of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)’s Board of directors, said that due to the complicated situation of the Covid-19 epidemic, macro indicators in 2020 were adjusted and banks also adjusted their business plans to suit the real situation.
Due to the weak absorption of capital from the economy, Vietcombank would safely and sustainably convert credit operations. Accordingly, Vietcombank’s credit growth this year was ‘soft landing’ of 10%, in line with the direction of SBV. From an operating point of view, Vietcombank aimed at credit growth in close control of credit quality and restructuring to improve efficiency, Thanh said.
Talking to the Securities Investment Review, Nguyen Quoc Hung, director of the Credit Department of Economic Industries (SBV) shared, business demand for credit was very weak. Many businesses were short of money to pay debts but still had no plan for a new loan because they had no ideas of where to get raw materials and whom they could sell goods to.
In a more positive perspective, Yun Liu, Asean market economist, HSBC Global Economic Research Division, said that success in preventing the disease had given Vietnam time to recover.
Remarkably, in the second half of May, credit saw a strong gain to 0.76 percentage points, showing that credit demand was recovering. With ingenious adaptability, Vietnam had almost returned to normal, supporting retail sales to recover quickly in the previous month. With that, all domestic flights of Vietnam Airlines had been resumed, showing consumer confidence in the recovery of the economy, Yun Liu said.
Sharing with the Securities Investment Review, leaders of banks as well as experts had positive expectations on the restart of the economy, the recovery of production and business activities when the epidemic was under control. The government had relaxed control measures.
Can Van Luc, a chief economist of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that by the end of Q2/2020, credit growth could reach 3.5 percent to 4%, and approximately 9 percent to 10 percent at the end of the year. Nguyen The Minh, director of Analysis of Yuanta Vietnam Securities Company also said that credit in 2020 would increase by 9 percent to 10%. VNDirect Securities Company also forecasted that credit growth this year would be higher, at about 11%.
