According to the capital market newsletter for the week of March 11th 15th, one of the highlights of the past week was the Treasury bill issuance of the State Bank of Vietnam (SBV) after a long time not issuing and maintaining bill balance of zero. Specifically, the SBV issued 17 trillion dong of bills of seven-day tenors at interest rate of three percent per annum and net withdrew 6.374 trillion dong via the Open Market Operation (OMO). Thus, on OMO and bill channels, the SBV net withdrew 23.373 trillion dong in the week.
Up to now, the total value of OMO and bill in circulation is currently 24.587 trillion dong, relatively lower than the average level of the recent months. From the beginning of 2019 until now, the SBV net withdrew a total of 64.820 trillion dong via OMO and bills. This trend has been continued for five consecutive weeks. Notably, there was a shift between SBV’s OMO and bill channels.
According to Bao Viet Securities Company, as the OMO in circulation dropped to low level (7.588 trillion dong), the net withdrawal via OMO channel cannot be used much further. Thus, the SBV returned to issue bill to continue the net withdrawal.
Commenting further about this move, Saigon Securities Incorporation (SSI) said that this can be the starting sign of a net withdrawal period after four consecutive months of injection, and also can be a message about the SBV’s short-term policy to maintain overnight rate on the interbank market at a minimum of three percent per annum.
In fact, although SBV continuously net withdrew up to 162 trillion dong in the past five weeks, the interbank rates steadily declined, particularly in the past week. The overnight, one-week and two-week rates fell respectively from 3.95 percent, 3.8 percent and four percent to 3.55 percent, 3.45 percent and 3.65 percent.
The continuous downtrend of interbank rates, according to Viet Dragon Securities Company, was due to the fairly large gap between money supply and credit growth in the first two months of the year. The recent report pointed out that the growth of money supply reached 2.1 percent in the first two months of the year, while credit growth was only 0.8 percent.
Experts said that with the current developments, the down turn of interbank rates will continue in the near future and decline to the average level of three percent per annum on all terms.
Contrary to the interest rates on market 2, the interest rates on market 1 tended to slightly increased, particularly on long term. As recorded by reporter, from early March until now, the dong mobilisation interest rates have not shown sign of decline, and even slightly increased. At Asia Commercial Joint Stock Bank (ACB), the 12-month deposit rate applied to customers outside HCM City area increased by 0.2 percent, depending on the value of deposits.
Specifically, the interest rate is seven percent per annum is applied for customers depositing less than 200 million dong, while this rate is 7.1 percent per annum for deposits from 200 to 500 million dong, and 7.15 percent per annum for deposits from one to five billion dong. At Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), the deposit rates applied from March 2019 saw much changes compared to the previous time. Notably, the highest deposit rate of the bank increased from 7.6 percent to eight percent per annum, applicable for terms from 48 months.
In addition to increasing direct deposit rates, some banks attracted long-term capital via deposit certificates with attractive rates. For example, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) is implementing a medium and long-term deposit certificate programme with interest rates reaching up to 7.6 percent per annum. This level is much higher than the normal rate at BIDV of 6.9 percent per annum, applicable for 12-month, 24-month and 36-month terms.
Representative of BIDV said that the purpose of the bank’s issuance of long-term deposit certificates is to diversify the mobilised capital, and to encourage people and economic organisations to deposit on long terms.
In addition to the above reason, according to analysis of experts, in the context when the capital increase of banks, particularly state-owned banks, is not favourable, increasing capital mobilisation on long terms through issuing deposit certificates or bills of exchange is still the solution to help banks quickly and most effectively balance the capital sources, especially long-term capital, when the use of short-term capital for medium and long-term lending is increasingly tightened.
A banking expert said that “sharply increasing interest rates to create significant difference among terms will help banks restructure their input capital sources more sustainably and also help banks have a stable source of capital for lending. The clear difference between short-term and long-term interest rates will also draw a more standard interest rate curve.”
Not denying the need of increasing interest rate to attract long-term capital, a bank leader concerned that it may put pressure on deposit interest rates in the near future, particularly for small and medium-scaled banks. He said that at present, the long-term input interest rates of joint stock banks are fairly high compared to that of state-owned banks’, averaging at seven percent per annum and more. Competition is needed, but if the increase is more harmonious, the pressure on small-scaled banks will be lessened.
According to reporter, some banks have also adjusted down long-term interest rates, such as Bac A Commercial Joint Stock Bank (BacABank) lowering its rates for terms of12 months and more from 8.2 percent to 8.1 percent per annum. However, it is just a local development. Going up is still the main trend for deposit rates in the first half of March. It can be denied that when deposit rates increase, the pressure on lending rates will be higher.
A member of the National Financial and Monetary Policy Advisory Council said that this is a fair game and we must accept this fact. It is difficult to have a perfect economy with both standard interest rate curve and cheap and abundant medium and long-term capital, particularly for Vietnam when banks are the main funding channel for the economy. Thus, it is not surprising if the medium and long-term interest rates of banks go up in the near future.
