Since the end of March 2019, the State Bank of Vietnam (SBV) has just pumped money into the market partly to compensate for the lack of liquidity in the market that lead banks to increase interest rates.
Survey of the Dau Tu Chung Khoan showed that the deposit interest rates for terms of 6 months or less have no big difference among banks, and forecasted them not to increase in April 2019. However, there are clear changes in interest rates for terms over 6 months.
Specifically, since April 2, Tien Phong Joint Stock Commercial Bank (TPBank) has made remarkable adjustments to deposit interest rates for 6-month, 12-month, and 13-month term, from 6.3 percent per year to 6.8 percent per year, 6.9 percent per year to 7.3 percent per year, and 7.1 percent per year to 7.6 percent per year. In addition, TPBank also offers 18-month deposit certificate with interest rate of 7.9 percent per year and 24-month deposit certificate of 8.6 percent per year.
Since November 1, 2018, Bao Viet Joint Stock Commercial Bank (BaoViet Bank) has applied interest rates of 7.4 percent per year for 6-month term, 8 percent per year for 12-month term, and 8.3 percent per year for 18-month term in EZ-Saving programme while the end-of-period interest rate is slightly lower. However, when talking with customers, BaoViet Bank’s staff said that the interest rate would be added depending on the amount of deposit (minimum from 500 million dong) and the deposit term.
Being one of the banks offering the highest interest rates in the market, Bac A Joint Stock Commercial Bank (Bac A Bank) continued to slightly adjust deposit interest rates, making it into the top two banks, together with Viet Capital Joint Stock Commercial Bank (Viet Capital Bank), with the most attractive mobilisation rates. Specifically, the 6-month interest rate is 7.4 percent per year, 12-month is 8 percent per year, 18-month is 8.5 percent per year, and 24-month is 8.6 percent per year. Particularly at Bac A Bank, 39-year-old customers will be entitled to an extra interest rate of 0.1 percent per year.
Generally, deposit rates at banks in March 2018 increased slightly compared to the end of February 2018. The average 12-month deposit interest rate at commercial banks generally increased slightly by 0.05 percent per year, while the interest rate at banks with a capital size of less than 5 trillion dong increased by an average level of 0.11 percent per year. 12-month term interest rates at banks with state capital remained unchanged at 6.83 percent per year.
In the last week of March, the SBV injected at net amount of 32.6 trillion dong via T-bills. Specifically, the SBV has issued 4.9 trillion dong 7-day 3 percent T-bills, while 37.5 trillion T-bills are due in the week. In contrast to the T-bill channel, the SBV withdrew a net amount of 1.094 trillion dong via OMO. Combining these two channel, the SBV injected a net amount of 31.506 trillion dong last week. This is also the first week since the Lunar New Year 2019 the SBV has conducted a net injection into the market.
Cumulatively since the beginning of 2019, the SBV has withdrew a net amount of 58.673 trillion dong via OMO and T-bills. Although the amount of net withdrawal has been reduced, the continuous withdrawal of money is considered as the reason that the liquidity in the market is scarce, showing in the increasing interbank interest rates (interest rates of loans between banks).
Notably, since the middle of March, overnight interest rates on the interbank market have suddenly increased sharply again after continuously calming from the beginning of the year. Specifically, the overnight interest rate has increased by one percent per year, from 3.15 percent per year to 4.15 percent per year, the one-week and two-week interest rates have increased respectively from 3.2 percent per year and 3.4 percent per year to 4.25 percent per year. The last week of March was also the time for banks to increase the amount of money to ensure the required reserve ratio.
General director of a bank stated: ‘It is possible that the pressure to reverse the compulsory reserve ratio in the last week of the month at banks is one of the reasons for the interbank interest rates to rebound. In addition, it does not exclude the possibility of fluctuations in deposits (possibly deposits of the State Treasury) at a number of large banks, leading to system liquidity problems. This is partly reflected when the commercial bank deposit interest rates increased slightly at the end of March compared to the end of February’.
Report of Rong Viet Securities Company showed that the demand for borrowing on the interbank market is quite high, maintaining over 50 trillion dong per session, the highest level in recent years. In general, over the past six months, the interbank interest rates have continuously fluctuated above the threshold of three percent per year and showed no sign of decline.
According to data from the general Statistical Office, the difference between money supply growth and credit growth is only 0.64 percent. Meanwhile, the government plans to issue government bonds with large total amount, 73.5 trillion in the first quarter and 260 trillion for the whole 2019.
Analysts forecasted overnight interbank interest rates to remain in the range of three to four percent per year in the second quarter of 2019, still under the control of regulatory agencies.
Along with the policy of prudent regulation, the proactive control of the money supply also aims to avoid the risk of inflation exceeding expectations when the prices of important commodities such as electricity and petrol have risen sharply in recent years..
Besides, keeping the interbank overnight loan interest rates above three percent year will also create a safe distance for the same interest rate applied to foreign currency loans, currently about 2.45 percent per year. A positive difference helps the SBV regulate the exchange rate accordingly.
Since the beginning of the year, the risk of exchange rate has decreased much when the free exchange rate and the bank exchange rate have cooled down. On the contrary, the SBV is still adjusting the central exchange rate to create a wider margin, avoiding the previous case of exchange rates continuously hitting the ceiling.
According to the latest survey of business trends conducted by the Department of Forecasting and Statistics of the SBV in March 2019, most credit institutions assessed that the business environment and their units’ business performance have improved in the first quarter of 2019 compared with the previous quarter and expected stable interest rates, higher capital mobilisation and credit growth.
Credit institutions reckoned the liquidity of the banking system still in a ‘good’ state for both dong and foreign currencies and expected it to continue to be positive. They expected capital mobilisation of the whole system of credit institutions and credit balance of the banking system to grow at an average rate of 13.74 percent and 14.51 percent in 2019 respectively, higher than the actual increase of 2018.
Regarding the direction of monetary policy and banking operations in the following months of 2019, Pham Thanh Ha, director of the Monetary Policy Department of the SBV, said that the agency would execute open market operations to regulate the liquidity of credit institutions at a reasonable level, stabilising the monetary market, and contributing to realising the monetary policy objectives.
It will operate compulsory reserve tools synchronously with other policy instruments and suitably to the monetary market developments and monetary policy objectives. It will also operate interest rates and exchange rates in line with macro balances, market developments, and monetary policy objectives; as well as synchronously incorporate monetary policy instruments to stabilise the foreign currency market.
