Illustrative image (Source: VNA)Hanoi (VNS/VNA) – Liquidity in the interbank market has been abundant,helping the State Bank of Vietnam (SBV) resume the issuance of treasury billsafter five months to withdraw Vietnamese dong from the banking system.
Reports from Saigon Securities Incorporation (SSI) showed the SBV withdrew 17 trillionVND (729.6 million USD) via the issuance of seven-day bills at interest rate of3 percent per year.
In addition, the central bank also net withdrew another 6.4 trillion VND viaopen market operation (OMO).
According to SSI analysts, the move could be either SBV starting to show signsof a capital withdraw period after four consecutive months of money injection,or an indication of SBV’s short-term policy to maintain the overnight interbankrate at a minimum of 3 percent per year.
Though the SBV withdrew up to 162 trillion VND in the last five weeks, interestrates on the interbank market steadily dropped, especially during last week.The rates sit at 3.3 percent on overnight loans and 3.4 percent on one-weekloans, down 68 basis points and 65 basis points against the previous week,respectively.
The analysts attributed the rate decline to good liquidity in the market afterthe SBV used a large amount of dong to buy US dollars from commercial banksover recent months.
It was reported the SBV has net bought the dollar to date this year to build upthe country’s foreign reserves. SBV data showed that after buying 6 billion USDlast year, it purchased another 4 billion USD in the first two months of thisyear thanks to the available US dollar supply in the domestic market.
In contrast to the good liquidity in the interbank market, many commercialbanks are still listing high interest rates of more than 8 per cent on depositsof more than 12 months. This allows them to have long-term capital to meet thecentral bank’s regulation on reducing short-term funds for medium- andlong-term loans to 40 percent against last year’s rate of 45 percent.
In addition, banks also need more capital to meet a capital adequacy ratio(CAR) of 8 percent in 2020 as per the SBV’s Basel II standards.
Due to commercial banks’ need for long-term capital, experts forecast interestrates for dong deposits will remain high despite favourable conditions untilbanks meet the central bank’s capital regulations.
“Demand for mobilising capital on long-term deposits will keep interest ratesat a high level, at least until the end of March,” SSI analysts said, addinginterest rates may only be reduced on terms of less than six months thanks tothe impact of low interest rates on the interbank market.
Economist Le Xuan Nghia said that although the central bank was very cautiousabout increasing the money supply in the market, the rise of Government bondyields is also putting more pressure on interest rates.
On the secondary market, bond yields increased by nine basis points on one-yearbonds and by one to three basis points on 10-year to 15-year bonds. The currentbond yields are 2.98 percent for one-year bonds, 4.75 percent for 10-year bondsand 5.07 percent for 15-year bonds.
The deposit rate hike is causing concerns about a domino effect on the lendingrate, but Nghia expects the central bank to take measures to keep the lendingrate relatively stable this year.
If a rise occurs, it would be of about 1 percent,he said.-VNS/VNA
VNA
