Macro Report

Interbank interest rates remained elevated on the back of rising credit growth

OMO activities have been actively used to smooth out the market.

Credit growth reached the highest since Dec 2017

Lending rates were stable, while deposit rates ticked up in some banks.

The VND depreciated (-0.5% MoM) amid rising domestic USD demand and global USD strength, though VND still remains one of the best performing currencies in the region.

The SBV stepped in to provide 3-month USD forward contracts to support greenback liquidity.

Yields in the primary market were flat for most tenures. Flat trading volume was light, due to weak support in both supply and demand.

Bond yields in the secondary market were up significantly on the back of rising global bond yields. The yield curve has taken on an increasingly flatter shape.

O/N interbank rates ticked up at month-end. Last week, the SBV pumped VND 4.3 tn worth of 14-day reverse repo transactions at 2.5% p.a. to the banking system, mostly at the last working day of Apr (of VND 3.1 tn). There was only VND 987 bn worth of bills that had expired, which led to total outstanding bills up significantly to VND 6.1 tn. Liquidity in the system might face a bit of constraints, coming from the sale of forward USD contracts from the SBV, as well as rising cash demand before the long holiday. Interbank rates therefore slid at the beginning of the week, and then jumped towards the weekend. Rates ended the week back over the 2% threshold, at 2.2% p.a (+40 bps WoW) for the overnight term and 2.6% (+60 bps) for the 1-week term. Longer terms also increased by +35 to 52 bps, ranging from 2.6% to 2.7%. In April, the SBV net injected a total of VND 1.3 tn in reverse repo bills, down from VND 3.8 tn in March. Average overnight rates cooled down to 2.1%, from 2.3% p.a. in March.

O/N interbank rates dropped below 2%. Last week, the SBV continued its net injection of about VND 500 bn into the banking system. Specifically, VND 1.7 tn worth of 14-day reverse repo transactions at 2.5% p.a. were issued, and there was about VND 1.2 tn worth of bills that had expired. That led to total outstanding bills up marginally, to VND 2.7 tn. VND liquidity in the system is still manageable though, we witnessed a decent amount of USD being sold to banks to support USD supply. The VND witnessed a depreciation of 0.3% for the week. USD shortage might be temporary, and may primarily reflect seasonal factors (FDI-invested companies repatriating profits in Q4 ’21 and Q1 ‘22).

Interbank rates cooled down Last week, VND 987 bn worth of 14-day reverse repo transactions at 2.5% p.a. were used, and there was about VND 3.8 tn worth of bills that had expired. That had led to total outstanding bills down by half, to VND 2.44 tn. Interbank rates cooled down a bit, ending the week at 2.23% p.a. (-6 bps WoW) for the overnight term and 2.42% (-12 bps) for the 1-week term. Longer terms also decreased by -12 bps, ranging from 2.51% to 2.72%.

Interbank rates remained elevated. OMO activities were relatively active last week. For 4 out of 5 days, reverse repo transactions were executed,  worth a total of VND 1.23 tn. There was VND 720 billion of bills expired for the week, and total outstanding reverse repos reached VND 5 tn. Interbank rates remained elevated, at 2.29% p.a. (+10 bps WoW) for the O/N term and 2.52% (+12 bps) for the 1-week term. Significantly, we observed that longer terms started to tick up ranging from 2.64% to 2.84% (+12 to 22 bps WoW), and reflected higher expectation rates given inflationary pressure.

Interbank interest rates remained elevated on the back of rising credit growth

Credit growth reached the highest since Dec 2017, while deposit rates ticked up in some banks.

The USD/VND exchange rate moved sideways (+0.1% MoM), and remains one of the best performing currencies in the region.

Yields in the primary market were flat for most tenures. Flat trading volume was light, due to weak support in both supply and demand.

Bond yields in the secondary market were up significantly on the back of rising global bond yields. The yield curve has increasingly taken on a flatter form.

Interbank rates flat. As expected for the quarter-end cyclical factor, last week VND 3.8 tn worth of 14-day reverse repo transactions at 2.5% p.a. were used – the highest OMO injection level after Tet. There was about VND 727 bn worth of bills that had expired, which drove total outstanding bills to reach VND 4.5 tn (vs VND 1.4 tn in the week before). Interbank rates on the other hand were relatively flat, ending the week at 2.19% p.a. (-8 bps WoW) for the overnight term and 2.39% p.a. (-5 bps) for 1-week term.

There was VND 723 tn corporate bonds (C-bond) issued in 2021, rising +56% compared to 2020. The market size of corporate bonds grew 46% on average over the past five years and accounted for 16.6% of Vietnamese GDP in 2021.

Banks gradually narrowed their roles as both issuers and investors in the C-bond market. The C-bond market has become a channel of mobilizing medium- and long-term funds, supplementing the credit channel over time.

With the C-bond market offering a wider variety of issuance formats, foreign investors have responded with increased investment in Vietnamese C-bonds.

Average term of bonds issued in 2021 declined by almost half a year, with an 111 bps  reduction  in the average coupon .

Real estate C-bonds still have the most attractive coupon rates in the market, averaging 10.4% per year.

C-bonds guaranteed (partly/ entirely) by shares or C-bonds which have no collateral assets accounted for 53% of total non-financial C-bonds issued in 2021.

For 2022, we believe the C-bond market still has substantial growth potential given both high demand and supply, but such potential might be largely curtailed by regulatory changes around the corner. Coupons could inch higher. The role of banks in the C-bond market is expected to be increasingly  narrowed. Implementation of credit ratings in Vietnam has great potential for development.

The first reading for 1Q22 real GDP growth came in at 5.03% YoY (vs 4.72% in 1Q21), which fell into the lower end range of our in-house Q1 consensus of 5 – 5.5%. This implies a moderate economic recovery amid still-weak domestic demand, influenced by elevated commodity prices and the latest Covid-19 resurgence in the country.  Production operations have almost resumed to full capacity in Q1, and helped industrial sectors find recovery footing. Manufacturing (+7.79% YoY vs 8.90% in 1Q21) remained as a key growth driver for the economy, underpinned by strong export growth. Some manufacturing sectors particularly stood out in terms of improvement in 1Q GDP, such as clothing (IIP 24.1% YoY), electronics (IIP +9.4% YoY), and machinery (+16.2%). We noted that the HCMC 1Q22 manufacturing industrial index of production (+0.4% YoY) has finally returned to positive growth rate territory after two deep slump quarters, which provided further optimism on the ongoing recovery.

Interbank rates stayed at high level. Last week, VND 715 bn worth of 14-day reverse repo transactions at 2.5% p.a. were used, and there was about VND 1.019 tn worth of bills that had expired, which led to total outstanding bills tallying VND 1.441 tn. Interbank rates crawled up towards the weekend, ending the week at 2.28% p.a. (+2 bps WoW) for the overnight term and 2.44% p.a. (unch) for the 1-week term. Overall, for the first 3 months of 2022, liquidity in the banking sector was likely under pressure of shortage, while credit demand increased as the country recently opened for tourism and fulfilled other milestones in the nation’s reopening agenda. Interbank rates therefore rose significantly, by nearly 70 bps YTD for both the overnight and 1-week term. Longer term rates ranged from 2.48% to 2.56%, and the yield curve flattened, reflecting higher demand in the short-term. We believe that interbank rates might have already bottomed out, which might posit towards more of an upward trajectory in 2022. As the quarter end cyclical factor returns again, we expect that O/N interbank rates might still remain at around 2 - 2.5% p.a this week.

Interbank rates hovered at high level. Last week saw VND 411 bn worth of 14-day reverse repo transactions at 2.5% p.a. being used, with about VND 678 bn worth of bills that had expired. This led to total outstanding bills down to VND 1.43 tn. Interbank rates were almost flat, ending the week at 2.26% p.a. (+1 bps WoW) for the overnight term, and 2.4% p.a. (+5 bps) for the 1-week term. According to the results of a recent survey of credit trends conducted by the SBV and along our consensus, domestic banks estimate that credit growth is expected to reach 5.3% YTD in the first quarter of 2022, and is forecast to increase by 14.1% in 2022. As announced from SBV, as of March 10th credit growth reached 3.11% YTD, 1% higher than the same period last year, and 0.6% higher than data reported about 2 weeks ago. Such data reflects the improvement in credit demand amid economic recovery in Vietnam. It is partly helped by the banking industry, which has provided to borrowers a series of preferential loan programs. For example, VCB announced a preferential loan program for SMEs (from 15/3/2022 to 31/3/2023) with a maximum aggregate borrowing limit of up to VND 49 tn, with rates ranging from 5.6%-8.3% per annum. BID, on the other hand, implemented a credit incentive program throughout the year. The BID program similarly offered an aggregate borrowing limit to its pool of borrowers of up to 200 tn, of which VND 100 tn is for aggregate individual customers borrowing for the purpose of funding short-term business needs. This subgroup was able to access loans at rates from only 5% p.a. and up for terms under 6 months, and 5.5%/year for terms of 6-12 months. 

Deposit rates up, as large banks move to attract deposits. Last week, VND 1.02 tn worth of 14-day reverse repo transactions at 2.5% p.a. were used, and there was about VND 920 bn worth of bills that had expired, which led to total outstanding bills tick up a bit to VND 1.7 tn. Interbank rates continued to slide slightly. The overnight term rate recorded 2.25% p.a. (-12 bps), and the 1-week term was 2.4% p.a. (-1.4 bps). Longer term rates were almost flat (ranging from 2.42% to 2.64%). The SBV recently revealed that domestic banks had logged 2.52% YTD in credit growth by the 25th of Feb, a significant update compared to the 1.82% YTD rate announced previously in the monthly government meeting. However, it is still lower than the 2.74% YTD rate recorded at the end of January this year. Accordingly, credit balance fell by nearly VND 23 tn within Feb.

Interbank rates further to cool down. Last week, liquidity in the banking system continued to see further signs of improvement, and VND 678 bn worth of executed 14-day reverse repo transactions at 2.5% p.a has been used to support a temporary liquidity shortage. Total outstanding bills ticked up a bit, to VND 1.5 tn. Interbank rates continued to slide. The overnight term rate recorded 2.37% p.a. (-11 bps), and the 1-week term was 2.4% p.a, (-12 bps). Longer term rates were almost flat (ranging from 2.42% to 2.64%), and the curve flipped back to normal. As the end of quarter cyclical factor returns again in March, we expect that O/N interbank rates might still remain around 1.5 - 2% p.a. We do not see much chance for FX accumulation from the SBV, given the currently adequate level of forex reserves and a higher USDVND rate than the SBV-bid rate.

Interbank interest rates remained elevated on the back of liquidity shortage.

Credit growth dropped, while deposit rates ticked up in some banks.

The USD/VND exchange rate depreciated by -0.8% MoM due to cautious sentiment amid the Russia – Ukraine war, and fears of faster Fed tightening.

Yields in the primary market were flat for most tenures. Trading volume was light, as expected for the new year.

Bond yields in the secondary market were up significantly on the back of rising global bond yields. The yield curve has increasingly taken on a flatter form.

Interbank rates continued to cool down. Last week, liquidity in the banking system continued to see further signs of improvement, with only VND 377 bn worth of 14-day reverse repo transactions conducted, at 2.5% p.a. There was VND 14.4 tn in bills expired for the week, which led to a drop in total outstanding bills to VND 900 bn. Interbank rates therefore cooled down, though rates were staying at high levels. The overnight term rate recorded 2.48% p.a (-22.6 bps), and the 1-week term was 2.52% p.a, (-30 bps). Longer term rates ranged from 2.42% to 2.64%, and the curve has started to flip back to normal.