Macro Report

Liquidity continued to be a focal point in September. The SBV actively used OMO activities to help set the tone for interbank rates during the month. Rates trailed higher overall to reflect the recent pivot towards a tightening monetary policy.

The SBV announced the first policy rate hike since 2011, following at the heels of other regional central banks to lessen the weakness of the local currency, in a bid to tame inflationary pressure.

Broad-based increases by 30-100 bps in deposit rate quotations at banks after the policy rate hike, for both individuals and corporations. Lending rate increase was at a slower pace.

Credit growth reached 16.9% YoY, slightly up from 16.2% in August. Credit growth conditions eased during the month, as credit extensions were granted by the SBV to domestic banks in early September.

The VND notably underwent depreciation in September. The SBV revised its ask-price twice in Sept, and FX intervention from FX reserves were limited.

Trading volume dropped in the primary market, as asking yields were up significantly to reflect conditions in the secondary market.

Bond yields in the secondary market were up significantly during September, and the primary market spread widened.

Significant jump in interbank rates. Last week, the market saw significant jumps in interbank rates due to sudden shortage from VND-denominated liquidity. The overnight interbank rate soared to over 8% on Wednesday and Thursday. At some points during the week, the ask-rate quoted by banks even jumped to over 10% p.a., which seemingly created a degree of panic sentiment, and resulted in spillover effects across other banks. The SBV again applied its available toolbox and utilized the reverse repo facility to support liquidity, amounting to VND 41.7 tn for the week at an average winning rate of 6.5% p.a. (from 5.9% as seen during the last week). Closing the week, overnight rates calmed down to around 6.8% p.a.

SBV officially hiked policy rates. Last week, the SBV maintained tight liquidity and kept interbank rates hovering at a reasonable level to prepare in advance for the Fed rate hike. SBV-bill issuance was regularly utilized, with a total of VND 73.8 tn in 7-day T-bills at 4.5% (+50 bps higher than the previous rate). On the other hand, 7-day daily reverse repo volume has also applied at an average of VND 1 tn per day, with the winning rate gradually ticking up to 5.5% (+90 bps) on Friday. Overall, VND 34.6 tn has been withdrawn out of the system via OMO activities, and around VND 23 tn via FX sales. Closing the week, the overnight interbank rate was at 4.9% (+37 bps WoW). Given further expected aggressive actions from the Fed, we believe that the SBV might opt to maintain its tight liquidity status to year-end, and the VND interbank rate might reach 5-5.5% range to attain a safe zone vis a vis the USD.

SBV-bills have been reactivated. After a rough week for liquidity, pressure for VND-denominated liquidity in the banking system seems to have possibly abated. Daily reverse repo volume has gradually declined, from the peak of VND 15 tn to an average of VND 1 tn. The winning rate was at 4.6% p.a, slightly up 10 bps from last week. Interestingly, SBV-bill issuance has been reactivated, with a total of VND 44.6 tn in 7-day T-bills at 4% (140 bps higher than the previous rate). We saw that the rates in open market operations have been gradually rose, probably from the SBV’s intention to prepare in advance the market’s expectation of possibly acute Fed rate hikes (which places pressure from market forces on the VND). Overall, a total of VND 59.64 tn has been withdrawn out of the system. Closing the week, the overnight interbank rate was more stable, at 4.5%. 

SBV T-bill issuance saw steady issuance in August, cycling back into the market. The VND overnight interbank rate cooled down, as the liquidity shortage situation calmed.

Credit growth reached 16.2% YoY, slightly slowing down from the peak in May. Credit growth extension was been granted by the SBV to domestic banks in early September.

The VND was quite stable in August. The SBV has revised its ask-price in early September, to prepare in advance for possible rising USD strength brought on by the market’s expectation of another Fed rate hike.

Trading volume was improved significantly in the primary market. Winning yields gradually ticked up, whereas the spread between the primary and secondary market narrowed.

Bond yields in the secondary market were flat during August, reflecting improvement in liquidity.

The overnight interbank rate jumped on the back of tight liquidity. Last week, VND-denominated liquidity in the banking system had suddenly come into shortage after the long weekend, probably coming from the expiration of USD-denominated forward contracts (estimated of about $1.2 bn worth for this week and another $250 mn sold at spot during the week). Reverse repos were again reactivated to provide temporary systemic liquidity, and the total amount for the week reached VND 64.4 tn (with tenure widening to 14 days, and winning rate reached around 4.5% to 4.65% p.a). The VND overnight interbank rate jumped to 6.5% on the 7th of Sept – the highest rate since 2012 - and then started to cool down later on. Closing the week, the VND overnight rate was at 4.9% (+40 bps). The SBV net injected VND 58 tn via OMO activities.

Overnight interbank rate jumped on the back of tight liquidity. During a shortened week for the market, OMO activities provided temporary liquidity for the banking system, as evidenced by a higher witnessed demand in terms of the cash balance as the country prepared for the holiday weekend. Reverse repos were more active and provided more than VND 20 tn of liquidity to the system, mostly Tuesday and Wednesday before the market close for the week. The floor rate was set at 3.75%, and the winning rate jumped to 4.5% p.a for the 7-day tenure for reverse repos activities. In terms of SBV bill issuance, there was VND 1 tn worth of SBV bills that had been newly issued. For the week, the SBV net injected about VND 52.9 tn via OMO activities (VND 35 tn from SBV-bill expiration, and VND 17.8 tn from reverse repos).

Credit quota extension to announce this week. Last week, the SBV continued to utilize SBV-bill issuance tools and USD sales contracts to lift up the interbank rate. This was done in order to maintain a safe zone vs. the USD rate and protect the Dong. Total amount of SBV-bills reached VND 33 tn. Rates rose, in which the 7-day tenure was at 2.6% (unch vs last week), 14-day of 3.44%-4.0% (from 3% last week), and 28-day of 3.45% p.a.

SBV efforts to lift up VND interbank rate. Last week, in order to lift up the interbank rate, the SBV has actively utilized both T-bill issuance tools and USD sales in order to maintain a safe zone vs. the USD rate. Total amount of bills issued by the SBV reached VND 103 tn – the highest weekly issuance level since early July. Rates also lifted up, in which the 7 day tenure was at 2.6%, with a 14 day tenure at 3.0% and 28 day of 3.45% p.a. On the other hand, 7-day reverse repos were utilized at a marginal volume of nearly VND 500 bn per day at 3.5% p.a, probably to serve temporary liquidity shortage in small banks. For the week, the SBV net withdrew about VND 88 tn via OMO activities and an estimated of VND 23 tn via USD sales contracts. Closing the week, the overnight interbank rate was at 2.5% (-20 bps), and the gap between VND-USD was tight.

Liquidity pressure quickly to be clear. As we widely expected, pressure for VND-denominated liquidity in the banking system has been apparent for last week. Daily reverse repo volume declined significantly, from the peak of VND 15 tn two weeks ago to only VND 365 bn as of last Friday. There was only one bidder that had joined in this auction, and the winning rate maintained at 3.8% p.a - close to the floor setting at 3.5%. Interestingly, SBV-bill issuance has been reactivated again on Friday, with a decent amount of VND 9.7 tn 7-day T-bills at 2.6% p.a.

OMO activities being actively utilized. After a rough week for open market operations, market sentiment has markedly improved and pressure for VND-denominated liquidity in the banking system seems to have possibly abated. Daily reverse repo volume has gradually declined, from the peak of VND 15 tn to just VND 2 tn as of last Friday. The rate bidding mechanism was still applied at a floor rate of 3.5%, which created a minimum upper bound range for the overnight rate to maintain a safe spread with the USD overnight rate. The winning rate was down to 3.8% p.a. at the beginning of the week, and then crawled back to 4.5% as of Friday. Interestingly, SBV-bill issuance has been reactivated on Thursday, with a total of VND 12 tn in 14-day T-bills at 2.6% (20 bps higher than the previous rate). Overall, a total of VND 8.4 tn has been withdrawn out of the system, mostly from reverse repo expiration. Closing the week, overnight interbank rate was more stable at 4.2% - flat vs last week’s.

SBV T-bills issuance was steadily implemented for the first 3 weeks of July. At the end of July, liquidity quickly became to be under pressure. The SBV stepped in and responded via resuming reverse repos. The reverse repo rate shifted to a rate bidding mechanism, and the SBV set up a new floor rate (at 3.5% p.a, +100 bps higher than previous).

The VND overnight interbank rate jumped to over 4% as of July, and the spread between USD and VND interbank rates reverted to a positive zone favorable to domestic banks.

Credit growth reached 16.2% YoY, slightly slowing down from the peak in May. During the month of July and at the time of writing, there had been no announcement of credit growth extension granted to domestic banks yet.

Deposit rates ticked up at most banks, from SoCBs (VCB, BID, Agribank) to large JSCBs.

The VND continued to depreciate in July, but at a slower rate as the SBV signals a possible pivot underway in its official monetary policy.

Trading volume was weaker in the primary market. Spread between the primary and secondary market remained large.

Bond yields in the secondary market were up significantly, reflecting higher rate expectations.

OMO activities being actively utilized. Last week was a rough week for open market operations. VND-denominated liquidity in the banking system was under pressure via the sales of USD-denominated contracts, and likely from end-of-quarter liquidity withdrawal from the State Treasury. As a result, reverse repos have been reactivated at a time when SBV outstanding bills still stood at around VND 120 tn. The SBV has quickly shifted reverse repos from a volume auction (fixing the winning rate of 2.5% p.a) to a rate bid (fixing the volume of VND 15 tn per day and later setting the OMO floor rate of 3.5%). Yet, OMO rates went up to 4.3% for the 1-week tenure, though we believe that this rate is only short-lived in nature in order to deal with a temporary liquidity shortage. Overall, a total of VND 58.4 tn has been pumped to the system via a VND 46 tn of 7-day reverse repos contracts and VND 12.4 tn of SBV-bills expired.

Interbank rate jumped as VND liquidity under shortage pressure. Last week, we observed that VND denominated liquidity in the banking system was under pressure, mostly due to sales of USD-denominated contracts. The SBV has sold more than $2.4 bn from FX reserves via spot contracts at rate of 23,400 VND per USD, implying about VND 56 tn has been withdrawn out of the system. As a result, VND 6.26 tn of reverse repo 14-day contracts have been issued at 2.5% - the largest weekly amount since Feb this year. On the other hand, the SBV offered VND 24.15 tn worth of treasury bills at 56 days at 2.3%-2.4%, whereas VND 72.9 tn went expired. Overall via OMO activities, the SBV has pumped about VND 59.4 tn of liquidity into the system.