Macro Report

Interbank rate declined on the back of abundant liquidity. Last week, both FX forward and spot sales were executed, and pumped a total of VND 32 tn into the system without any sterilization actions from the SBV. Liquidity was thus abundant, and drove interbank interest rates down. The week closed at 0.66%/year (-4 bps WoW) for the overnight term, and 0.75%/year (-3 bps) for the 1-week term. The SBV has recently updated actual credit and M2 data by September, exhibiting a slowdown in observed deposit growth. Total deposits as of September recorded VND 10.5 quadrillion (+11.5% YoY), and followed a downward trend since April ‘21. That was mostly due to the stagnancy in household deposits, which only grew at an average of 4% YoY for this year (vs 7.5% in 2020). The low-rate environment was the main reason, as deposit rates have declined by about 2% compared to pre-Covid, currently ranging from 3 – 4% for terms under 6 months, 3.7 – 5% for terms of 6 – 12 months, and 4.2 – 6.5% for terms over 12 months.

Interbank rate flat on the back of abundant liquidity. There was about VND 7 tn last week injected into the system via the FX forward sales scheme, and no sterilization actions have been seen from the SBV. Though there was no spot FX transaction seen last week, liquidity remained abundant and interbank interest rates were flat for the week, ending at 0.69%/year (unch WoW) for the overnight term and 0.78%/year (-2 bps) for the 1-week term. For this week, interbank interest rates are expected to slide because of the amount of VND supply from USD forward sales transactions (nearly VND 10 tn), as well as from the return of FX spot sales from commercial banks. Also, the State Treasury of Vietnam (STV) have bought $250 mn in the spot market through a public offering last week, and about VND 5.7 tn was pumped into the market early this week. The SBV announced that to support business in the country during the pandemic, the total amount of restructured debt from Jan 20 to the end of October was VND 550 tn, and lending interest cuts for this period by commercial banks has resulted in VND 31.4 tn ($1.37 bn) in relief for borrowers, of a total VND 3.79 in outstanding loans. Monetary stance remains accommodative for the coming months ahead, and we could expect a further cut in lending rates, though these will be only marginal in scale. Furthermore, we expect that the SBV will soon make an announcement to raise the caps for banks having healthy quality loan books and associated safety indicators.

Liquidity abundant due to FX reserves accumulation. Last week marked yet another period with no new transactions in terms of open market operations. The 6-month USD forward contract continued to be exercised. We observed a sizeable FX spot sell transaction volume to the SBV from commercial banks last week after a few months of idling, rendering the total amount of VND pumped into the system reaching nearly VND 32 tn. That in turn drove interbank rates down by 2-3 bps. The week closed as follows: 0.69%/year (-2 bps WoW) for the overnight term, and 0.80%/year (-3 bps) for the 1-week term. 

Interbank interest rates increased marginally. Last week marked yet another period with no new transactions in terms of open market operations. The 6-month USD forward contract continued to be exercised, but total value was much lower than in the previous week (VND 2.2 tn vs VND 5.0 tn during the week of 18 – 22 Oct ). Together with the end-of-month cyclical factor, this made interbank interest rates rise marginally. The week closed as follows: 0.71%/year (+3 bps WoW) for the overnight term, and 0.83%/year (+4 bps) for the 1-week term. 

Interbank interest rates flat at low levels. Last week marked yet another period with no new transactions in terms of open market operations. The 6-month USD forward contract worth nearly VND 4.5 tn continued to be exercised this week. Interbank interest rates were flat at low levels, ending at 0.68%/year (unch WoW) for the overnight term and 0.81%/year (+3 bps) for the 1-week term. Data from the SBV showed that by October 7th, credit outstanding rose by 7.42% YTD, which is equivalent to a 15.1% YoY expansion. The expansion implies that nearly VND 22 tn has been provided to the economy since post-Covid reopening (by September 20th, credit growth was at 7.12% YTD). Though the MoM credit growth figure has since decelerated, reflecting weak demand under slower economic activities, the YoY rate was comparable to pre-pandemic rates as banks continued to provide preferential loans to support businesses affected by the pandemic. On the other hand, M2 grew at a quicker pace of 5.65% YTD vs. 4.95% YTD as of September 20th, as the SBV injected about VND 85 tn into the banking system. The surplus balance between credit supply and demand signaled a more accommodative monetary stance. In fact, the SBV announced that lending interest cuts from mid-July to September by commercial banks had resulted in VND 11.8 tn in relief for borrowers, stacking up to 53% of the banking industry’s committed plan for the year. Lending rates had fallen by an average of 0.6 – 0.7% within 3Q 2021. We thus maintain our view that the SBV will continue to follow a dovish monetary policy. Deposit and lending rates will therefore continue to decrease marginally in Q4.

Credit growth declined in September. Last week, there were no new transactions in terms of open market operations. Interbank interest rates were mostly unchanged for the week, ending at 0.71%/year (+2 bps WoW) for the overnight term and 0.84%/year (+4 bps) for the 1-week term. From this week, new batches of USD forward sales in April and May 2021 will begin to be exercised, with an estimate of about VND 4 tn being pumped into the market. We expect that there will be no  sterilization actions from the SBV to help liquidity remain flush. According to the General Statistics Office and the Ministry of Planning and Investment, as of Sep 20th 2021, credit and deposit growth were 7.17% YTD and 4.28% YTD respectively (compared to 4.99% YTD and 7.35% YTD of the same period in 2020). Total M2 money supply increased by 4.95% YTD, lower than 7.58% YTD in the same period of 2020. On a monthly basis, we observe that credit growth has declined by -0.23% MoM in September, well expected given the prolonged lockdown in both Hanoi and HCMC. Thus, the deposit-credit gap has ticked up in September, and has helped to cool down rate rise pressure. Under current conditions, we expect deposit rates to stand pat, or angle slightly lower in case of another policy rate cut from the SBV. Lending rates, therefore, will stay at supportive levels in order to boost domestic demand and support the economy.

Lending rates lower year-to-date. Last week, there were no new transactions in terms of open market operations. OMO activities have almost been running idle since the start of the pandemic in 2020, which has reflected the abundant liquidity inherent in the banking system and has kept interbank rates at a low level. Interbank interest rates moved almost sideways for the week, ending at 0.69%/year (+1 bps WoW) for the overnight term and 0.8%/year (-3 bps) for the 1-week term. The SBV announced that to in order to support businesses in the country during this Covid time, lending rates had fallen by an average of 0.6% within 2021, and has amounted to a total of 1.5% in total interest rate cuts for the industry in 2020 and 2021 combined. That said, lending interest cuts from mid-July to August by commercial banks has resulted in VND 8.9 tn ($386 mn) in relief for borrowers, stacking up to 43% of the banking industry’s committed plan for the year. This is in accordance with the Vietnamese government’s Decree 63/NQ-CP, which requests 16 large commercial banks to provide support to the business community. Deposit rates also moved slightly downward in July-August, resulting in a total of about a 6-20 bps decline in 2021 when viewed through terms over 12 months. For the coming months ahead, the country’s monetary stance remains supportive, and we can expect a further cut in both lending and deposit rates, though this will be only marginal in scale.

Deposit rates mixed in banks. Last week, there were no new transactions in terms of open market operations. Interbank interest rates moved virtually sideways, and ended the week at 0.68%/year (-1 bps WoW) for the overnight term and 0.8%/year (-3 bps) for the 1-week term. Moving towards the end of the quarter, liquidity in the banking system might see a temporary constraint, and thus interbank rates could slightly inch up. Deposit rates flashed mixed signals for the week. We observed a slight reduction (10-20 bps) in deposit rates for the the big JSCBs (TCB, Sacombank) and SoCBs (BIDV), whereas rates inched up at small JSCBs (Baoviet Bank, PG Bank) towards the effective date of Circular 08/2020 towards more banking prudency. The latest figure from the SBV saw a -0.2% MoM blip down in total deposits in July. This was mostly from corporations (-0.51% MoM), reflecting rising cash demand amid the prolonged Covid-19 outbreak. Although the deposit-credit gap has narrowed significantly since Nov ‘20, it was still above pre-Covid levels, thus pressure remains limited. Under current conditions, we expect deposit rates to stand pat, or slightly lower in case of another policy rate cut from the SBV. Lending rates therefore will stay at supportive levels in order to boost domestic demand and support the economy.