Macro Report

Interbank rates declined in August. Last week marked yet another 7-day period with no new transactions in terms of open market operations, while there was about VND 10 tn worth of 6-month USD forward contracts that had expired. That would mark the end of USD-denominated sales, with a total amount recording $5.5 bn, equivalent to pumping about VND 127 tn into the system. It was lower than the registered figure early this year, as some contracts have since been cancelled. The next contract expiration will happen around October and November, with an estimated value of $1.7 bn. Interbank rates dropped by 6 -11 bps, ending the week at 0.75%/year for the overnight term and 0.90%/year for the 1-week term. Overall for August, interbank rates declined by about -15 bps MoM, at an average of 0.87% for the overnight term. More banks have come forward as team players, and have announced further support for customers affected by Covid-19 this week, with packages varying from lending rate cuts to soft loans. For example, Vietinbank has offered VND 2 tn worth of loans for businesses with a rate of only 4% per annum, whereas other banks such as MBB, ACB, Sacombank, etc have decided to cut rates by 50 to 150 basis points. On the other side, deposit rates for the 12M term slightly increased by 10-25 bps at some banks (BIDV, VPB, VIB, and HDB). We expect lending rates could move slightly lower in the short-term, whereas deposit rates will move sideways or slightly higher under the pressure of the prudent measures applied to short-term funding instruments, effective from October 2021.

Lower interbank rates. Last week marked yet another 7-day period with no new transactions in terms of open market operations. The 6-month USD forward contract worth of nearly VND 20 tn continued to exercise this week, and pumped VND into the banking system. Interbank interest rates dropped by 48-52 bps, closing the week at 0.97%/year for the overnight term and 1.18%/year for the 1-week term. Overall for July, interbank rates moved sideways at an average of 1.01% for the overnight term, down -20 bps MoM.  Interbank interest rates are expected to drop this week, due to excess amount of VND supply from USD forward transactions and stagnant credit demand. Recently, the SBV has published results of its June 2021 survey for credit trends of credit institutions. Overall, credit demand in all sectors was up in 1H2021 except for tourism, and is forecasted to rise in 2H 2021. Sectors including wholesale and retail, trade, consumer loans, and textiles are chosen as the main drivers for credit growth in banks in 2021. However, under the lingering of this 4th wave of coronavirus, credit institutions have adjusted down their expectations of credit demand in the fields of construction, tourism, transportation, etc, which are sectors hit hardest by the lockdown. Assessing 2H 2021, credit institutions are expected to slightly relax overall credit standards for most customer groups, in which priority is given to individuals and SMEs. In our base case scenario, this outbreak will be well controlled in August, and credit demand thus is to gradually increase. Lending rates are expected to move sideways, whereas the deposit rate will be up by 50 bps on average in 2H21.

Deposit rates slightly increase at some banks. Last week, there were no new transactions in terms of open market operations, and another VND 30 tn has been injected to the market via the exercise of 6-month USD forward contracts. Strict social distancing rules have widely applied in several provinces, including Ho Chi Minh City and Hanoi, which has led to a temporary rise in cash demand. As a result, interbank rates have inched up towards the weekend. As of July 23rd, interbank rates were 1.0%/year for the overnight term (+ 7 bps WoW) and 1.2%/year for the 1-week term (+13 bps). One week following the call of the State Bank of Vietnam (SBV), more than ten commercial banks have announced to lower lending rates from mid-July until the end of the year. The reduction of lending rates range from 0.5%-2.0% per annum, but there are many conditions to meet in order to satisfy for a borrower to receive the lending rate cut. On the other end of the equation, deposit rates slightly increased by 10-40 bps at some banks (BIDV, OCB, VPB, SHB). We maintain our view that deposit rates are unlikely to drop further, and will increase by 50 bps on average in 2H21.

Many banks announced to reduce lending rates. Last week, the open market had no new transactions, and the State Bank of Vietnam (SBV) net withdrew VND 53 bn through expired reverse repo transactions. USD forward sales continued to be exercised, with an estimated more than VND 30 tn being pumped into the market. Interbank interest rates moved slightly lower amid abundant liquidity in the banking system, closing the week at 0.95%/year for the overnight term and 1.1%/year for the 1-week term, down 3 bps WoW. The SBV has raised the 2021 credit limits for many banks. Credit limits increased by 2-6%, depending on the quality of loan books and the safety indicators of each bank. Targeted credit growth for 2021 is expected at around 11%, up from 9% set as initially. We expect one more credit limit extension at the end of 3Q, or the beginning of 4Q 2021. This extension will support banks to reduce lending rates according to the SBV's advocacy. Lending rates are confirmed to drop in VCB, BIDV, MB Bank, ACB, HD Bank, Sacombank, TP Bank, and Viet Capital Bank, with an average of 1% down per annum for Covid-19 heavily affected customers from mid-July till year-end. In the meantime however deposit rates remained unchanged, and are expected to remain flat in the short term interim. 

Lower interbank interest rates. The SBV net injected VND 53 billion through a 7-day reverse repo. Forward USD sales in early January 2021 have begun to be exercised, with an estimated more than VND 5 tn being pumped into the market last week. A more abundant supply of VND made interbank interest rates drop by 17-22bps, closing the week at 0.98%/year for the overnight term and 1.13%/year for the 1-week term. Interbank interest rates will remain low, as the amount of VND supply from USD forward sales transactions continues to increase this week. According to the survey conducted by the SBV, most credit institutions reduced their credit growth forecast in 2021 compared to expectations in the previous survey, due to unpredictable impact of the Covid-19 epidemic in 2H 2021. However, demand for loans is still forecasted to increase higher than the demand for deposits and payments. Specifically, credit institutions expect credit and deposit growth in 2021 to be 13.1% YTD and 11.9% YTD respectively.

Stable interest rates. Last week, the open market had no new transactions and interbank interest rates were stable, closing the week at 1.147%/year (-8bps) for the overnight term and 1.347%/year (-2bps) for the 1-week term. According to the General Statistics Office and the Ministry of Planning and Investment, as of June 21, 2021 credit and deposit growth was 5.47% YTD and 3.13% YTD respectively (compared to 2 ,45% YTD and 4.35% YTD of the same period in 2020), and total M2 money supply increased by 3.48% YTD, lower than 4.59% YTD in the same period of 2020. In 1H 2021, deposit rates remained stable at low levels after a sharp decrease in 2020, and lending rates decreased slightly for priority sectors. The current low interest rate environment places the deposit-credit gap under pressure to narrow, and we maintain our view that the deposit rate could inch up by 50 bps, while lending rates will remain stable in 2H 2021.

Interbank interest rate inched up. Last week, the open market went without new transactions. Interbank interest rates inched up, closing the week at 1.227%/year (+9bps) for the overnight term and 1.366%/year (+3bps) for the 1-week term. Commercial banks reduced the supply of VND, as the end of the quarter is right around the corner. This may cause interbank interest rates to continue inching up this week. According to the SBV, as of June 15, 2021, credit grew by 5.1% YTD. This means credit institutions have pumped out about VND 469 tn into the economy - 2.5 times higher than same period in 2020. Credit growth was quite strong, and if commercial banks are allowed to relax their credit limit this week, growth in 1H 2021 may be at 6%. Last week, Vietcombank increased its deposit rates by 20 bps for under-12-month deposits. The move now brings the bank to equal 3 other SoCBs, after maintaining a lower level since the beginning of the year. The current low interest rate environment places the deposit-credit gap under pressure to narrow, and we maintain our view that the deposit rate could inch up by 50bps, while lending rates will remain stable in 2H2021.

Stable interest rate. Last week, the open market had no new transactions, the State Bank net withdrew VND 1.08 bn through expired reverse repo transactions. Interbank interest rates were flat, closing the week at 1.135%/year for the overnight term, and 1.337%/year for 1-week term. According to the State Bank, as of June 9, 2021 credit and deposit increased by 4.9% YTD and 3.3% YTD respectively. Compared to the growth rate of credit and deposit as of May 21, 2021 of 4.67% YTD and 2.68% YTD respectively, deposits grew better than credit in the past 20 days. The deposit-credit gap widened by about VND 41 tn. Deposit rates will continue to remain stable in the short term. Beside the impact of the Covid-19 epidemic, some JSCBs (MBB, HDB, MSB, etc.) which reached the credit limit also slowed down credit disbursement. Currently, the State Bank is considering extending its credit limit for commercial banks. Credit is expected to grow well, and deposit interest rates may inch up in 2H 2021.

Interbank interest rate declined. Last week, the open market had witnessed the first small transaction after nearly 4 months of inactivity. The SBV net injected VND 1.08 billion through a 7-day reverse repo. A more abundant supply of VND from large commercial banks caused interbank interest rates to drop 30-32 bps, closing the week at 1.123%/year for overnight term, and 1.255%/year for the 1-week term. Deposit rates were steady at 2.9-4%/ year for under 6-month terms, 3.5-5.3%/ year for 6 to under 12 month terms, and 4.6-6.5%/ year for 12 and 13 month terms, but gapped between groups of banks. Some joint stock commercial banks increased rates slightly (10-30 bps) for individual deposits. The USD/VND exchange rate has been on a decreasing trend, and the SBV has also lowered the forward bidding exchange rate by 150 VND/USD to 22,975 VND/USD. Thus, the probability of commercial banks canceling USD forward sales transactions signed in January and February 2021 is very low. Therefore in July and August, a large amount of dong will be pumped into the market, and interest rates will remain stable.