Clients waiting outside a branch of the Silicon Valley Bank in Santa Clara, California on March 13. (Photo: XINHUA/VNA)“Furthermore, we see no substantial risk that the dynamics which negativelyimpacted SVB and certain other regional US banks could significantly impact theprofitability and/or solvency of banks in Vietnam.”
It was widely reported that latent losses on SVB’s securities portfolio coupledwith a drop in deposits at the bank were the main factors that led to its rapidinsolvency, it said.
Vietnamese banks also held Government bonds on their balance sheets, and theprices of 10-year Vietnam Government bonds (VGBs) had dropped by around 15% sincemid-2021 and yields surged.
However, VGB holdings only accounted for around 6% of listed banks’ totalassets, and “held-to-maturity” (HTM) securities for less than 2%.
This was much lower than the 5-10% levels typical for US regional banks, andfar below the 45% for SVB.
Said differently, the rise in Vietnamese Government bond yields probablygenerated over 3 billion USD of unrealised losses among Vietnam’s listed banks,or equivalent to just over 5% of their combined tier 1 equity; no banks stoodout as being particularly exposed as having large, likely losses versus theirnet equity.
Also, although SVB reportedly had unrealised losses of around 15 billion USD onits securities portfolio (which more than wiped out its 12 billion USD equity),the actual catalyst for its demise was a drop in deposits that forced the bankto realise/crystalise the losses on its securities portfolio.
This dynamic was also unlikely in Vietnam.
The drop in deposits prompted SVB to sell treasury bonds and mortgage-backedsecurities to raise cash to pay depositors. However, in Vietnam, the Governmentalways ensured that depositors were made whole during past banking crisesdespite the fact that deposit insurance only explicitly covered $5,000 worth oflosses.
“The net result of all of the above is that the risk of an SVB-style bankcollapse in Vietnam is very low, both because the catalyst that prompted theSVB situation is not present (i.e., depositors are not incentivised to withdrawtheir money from banks in times of crisis) and because the unrealised losses onVietnamese banks’ securities portfolios are not large enough to significantlyimpact their profitability and/or solvency.”
The Silicon Valley Bank collapse was unlikely to have any significant impact onVietnam’s economy despite the fact that the US was Vietnam’s biggest exportmarket, and it had a trade surplus with the US equivalent to 20% of its GDP.
“Exports to the US had already been slowing prior to the SVB collapse, and wedo not believe the bank’s collapse will exacerbate that slowdown since thedecline in Việt Nam’s exports to the US is primarily attributable to the factthat the inventories of major US retailers and other consumer facing firms suchas Nike, etc. rose by about 20% last year. Accordingly, the demand for ‘Made inVietnam’ products was already unlikely to recover until the second half of2023, irrespective of developments in the US banking sector.”
That said, the US government’s response to the SVB collapse prompted a plungein interest rates and rate hike expectations, which in turn facilitated anunexpected 1 percentage point policy rate cut in Vietnam from March 15.
A decline in US/global interest rates and a weaker US dollar would lead to animprovement in the liquidity of Vietnamese banks as well as lower interestrates in Vietnam.
“Finally, the news that Credit Suisse is also facing severe liquidity issues –which will also be solved by Switzerland’s central bank providing liquidity tothat bank – also put significant downward pressure on global interest rates.
“This will ultimately result in more liquidity flowing into the global economy,which should indirectly benefit Vietnameconomy and stock market.
“One of the most important reasons that we expect the Silicon Valley Bank andCredit Suisse sagas should end up being benign for Vietnam is because both arelikely to lead to a strengthening of the dong against the USdollar, which in turn will enable the State Bank of Vietnam (SBV) to re-accumulatea significant amount of FX reserves this year.
“This would inject significant Vietnamese dong liquidity into the economybecause the SBV usually accumulates FX reserves via ‘unsterilised’interventions in the FX market, which entails an increase in a country’smonetary base.”/.
VNA
