Macro Report

The issuance volume of corporate bonds (aka C-bonds) fell sharply in 4Q20, but 2020 was still a year of explosive growth with VND 455 tn of C-bonds issued (+48.4% YoY). The C-bond market increased nearly 40%, and currently accounts for about 12% of Vietnamese GDP.

Total bond capital for solar power projects surged from VND 8.4 tn (2019) to VND 30 tn (2020), with a focus on projects in Ninh Thuan and Dak Lak. Vietnam Electricity Corporation (EVN) plans to reduce renewable energy due to excess supply, and it could increase risks with the issuance of solar C-bonds.

In 2021, C-bonds in the form of public placement will improve, but private placement still accounts for the main proportion. The C-bond market will be less relevant compared to 2020, but still very active, with the low interest rate environment acting as the main driving force.

Stable interest rates. The open market remained dormant last week, with no new transactions. Interbank interest rates were stable, at 0.33% for the overnight term, and 0.51% for the 1 week term. Bank liquidity in March is forecasted to continue to be plentiful, as deposit mobilization is quite positive and the SBV still maintains a dovish monetary policy. Interbank rates are forecasted to remain low. Following Vietcombank, some banks (Vietinbank, HDB, OCB, Vietbank) either announced new preferential loan packages or renewed their preferential packages. These packages are mainly applicable to private businesses and SMEs under certain conditions. In the short term, we think that deposit and lending rates will remain at the current levels, and it is quite difficult to cut further.

Lending rates are expected to decrease further. The open market remained dormant last week, with no new transactions. The SBV net injected VND 26.6 tn through reverse repos. The interbank interest rates continued to decline to 0.33% (-77 bps) for the overnight term, and 0.54% (-67 bps) for the 1 week term. Some commercial banks cut individual deposit rates by 10-40 bps, but kept institutional deposit rates unchanged. The deposit rate gap between individual and institutional depositors was narrowed. Currently, institutional deposit rates were steady at 2.2-3.8%/ year for under 6-month terms, 3.3-4.9%/ year for 6 to under 12 month terms, and 4.2-5.8%/ year for 12 and 13 month terms. Last week, Vietcombank pioneered further lowering lending rates for customers affected by Covid-19, BIDV also announced preferential lending rates for SME customers. This movement increases the expectation that the lending interest rate will decrease further at many other banks.

Interbank interest rate cooled down. In the 2 working days before the Lunar New Year, the State Bank of Vietnam net injected VND 11.06 tn through reverse repos. The interbank interest rate during this time remained high (2.27% for the overnight term) due to high cash demand. After the Tet holiday, activity at the SBV was in a tranquil state, with no new transactions on the open market. Reverse repos from the previous week gradually matured, resulting in a net withdrawal of VND 8.53 tn last week. Interbank interest rates also quickly cooled down to 1.1% (-117 bps) in the overnight market and 1.21% (-113bps) for the 1 week tenure. In terms of rates set, deposits and lending both remained unchanged last week. Rates are expected to remain stable in 1Q 2021, as credit demand is still quite weak and the domestic coronavirus situation has not been extinguished yet.

The approaching Lunar New Year is causing cash demand to increase in the form of withdrawals, while deposits has declined as is seasonally appropriate. Last week, after nearly 7 months of dormant activity, the State Bank net injected VND 24.1 trillion through a 7 and 14-day reverse repo at the interest rate of 2.5%/ year on the open market. However, interbank interest rates still surged, closing the week at 2.13% (+180 bps) for the overnight term and 2.34% (+188 bps) for the 1 week term. We think that this was only a seasonal movement, as interbank interest rates will quickly cool down when external cash flows back into the banking system after the Tet holiday. In terms of rates set, deposits and lending both remained unchanged last week. Rates are expected to remain stable in 1Q 2021, as credit demand is still quite weak and the domestic coronavirus situation remains complicated.

Liquidity demand has increased as the Lunar New Year is right around the corner, which has been met with ample supply of large banks on the interbank market. Interest rates only inched up slightly, closing the week at 0.325% for the overnight term (+15 bps) and 0.463% for the 1 week term (+23 bps). The open market remained dormant. Last week, Vietcombank reduced its deposit rates further by -10 bps for all terms to 20-30bps lower level compare to 3 other state-owned banks . Most commercial banks kept their interest rates unchanged, and only a few small commercial banks increased rates by about +50 bps. 

Stable interest rate. The open market remained dormant last week, with no new transactions. Interbank interest rates inched down by -3 bps to 0.175% for the overnight term, and 0.23% for the 1-week term. Deposit rates were steady, at ranges of 2.5-3.8% for under 6-month terms, 3.7-5.0% for 6 to under 12 month terms, and 4.9-5.6% for 12 and 13 month terms. Some banks said that the SBV set a 1Q 2021 credit growth ceiling for them at 3-4% for the quarter. While the credit limit for the whole year is still in progress, it may be slower in previous years (early 2Q 2021), and the reduction of lending rates may be one of the criteria to be considered by the SBV.  We observed that credit growth is usually very low in January each year, and even shrinking in the years when credit growth was too strong the previous December. Therefore, the liquidity of commercial banks is still about the same, and deposit rates remain stable within the current range. Lending rates may slightly decrease for 5 priority sectors in 1Q 2021.

Stable interest rate. The open market remained dormant last week, with no new transactions. Interbank interest rates were stable, at 0.2% for the overnight term, and 0.26% for the 1-week term. Deposit rates also were steady at 2.5-3.8% for under 6-month terms, 3.7-5.0% for 6 to under 12 month terms, and 4.9-5.6% for 12 and 13 month terms. Recently, the representative of the SBV announced that it will inspect and evaluate the reduction of lending rates of commercial banks, and suggest banks to consider lowering lending rates as an important priority in early 2021. So, we expect that deposit rates remain stable within the current range, and that lending rates may slightly decrease for 5 priority sectors in 1Q.2021.

Stable interest rate. 2020 was a bit of a surprise towards the end, capping off the year with a credit growth rate of 12.13% YoY. That means in the last 10 days of the year, total outstanding loans had grown by nearly 2% (about VND 150 trillion). Credit accelerated robustly in December 2020, and liquidity of commercial banks was considered to be ample moving into the new year. The open market continued to be dormant last week, with no new transactions. Interbank interest rates were stable, at 0.19% per annum for the overnight term, and 0.26%/ year for the 1-week term. Deposit rates also were steady at 2.5-3.8%/ year for under 6-month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. We expect 2021 credit growth to kick up a notch to 13-14%. We expect deposit rates to remain low in 1H 2021, and may inch up (30-50bps) in 2H 2021 due to stronger credit output.

The money market went quietly into the last days of 2020. The open market was without transactions. Interbank interest rates were flat at 0.19% per annum for the overnight term, and 0.295%/ year for the 1-week term. Deposit rates also were steady at 2.5-3.8%/ year for under 6 month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. The net funding from the OMO market equated to zero in 2020, but the SBV continues to buy a large amount of USD, which is over $22 bn USD in our estimate. Overall, we might find that net injection from the SBV might increase by 13% YoY for 2020 once we get the final confirmed annual figures.

The open market continued to be dormant last week, with no new transactions. Interbank interest rates were stable, at 0.2% per annum for the overnight term, and 0.25%/ year for the 1-week term. Deposit rates also were steady at 2.5-3.8%/ year for under 6-month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. According to the SBV, by Dec 21^st, credit growth has been 10.14% YTD already (or 11.62% YoY), and its estimates for 2020 credit growth was revised up from 8-10% to 11% YoY. It has brought disbursement to a more robust and fuller VND 331 tn in 4Q 2020 (vs. VND 200 tn during 3Q 2020). Rationale for such an upbeat end to the year in terms of credit growth was rooted in (1) economic recovery sparked by successful Covid handling, (2) a switch from corporate bonds to bank credit, (3) a consumer finance reboot and (4) a lower lending rate at some banks.

Interbank interest rates were stable at 0.19%/ year for the overnight term, and 0.24%/ year for the 1-week term.  We note a similarity to the last 6 months as observed on a historical basis.

Deposit rates were also steady, at 2.5-3.8%/ year for under 6 month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. Vietcombank has just reduced its lending rate by 1% for all corporate customers for 3 month terms. YTD, the lending rate has decreased from 0.5% to 2.5%/year, focusing on business loans. Credit activities of commercial banks have been more active in the last few days of the year, and the liquidity of commercial banks looks to be vibrant moving forward. Interbank interest rates and deposit rates will remain relatively constant for the next few months.

The open market continued to be tranquil last week with no new transactions. Interbank interest rates were stable at 0.19% per annum for the overnight term, and 0.24%/ year for the 1-week term. Deposit rates also were steady at 2.5-3.8%/ year for under 6 month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. Recently, the SBV loosened the 2020 credit growth limit for the second time to some commercial banks (VIB, TPB, HDB, MBB), of which the highest limit was up to 30%. Some banks, led by 4 SOCBs, also launched loans for retail business and SMEs at lending rates 20-50 bps lower to boost credit growth as the end of the year quickly approaches (4.8-6.5%/ year for under 6 months, and 5.5-7.5%/ year for 6 to 12 month loans). However, lending rates for home and car loans for most commercial banks only decreased by 10-20 bps compared to the end of 3Q 2020, at 7%-9.5%/ year for the fixed rate period (6-24 months) and at 10.5% -11.5%/ year for following periods. Credit growth is improving this quarter, and the liquidity of commercial banks looks to be vibrant moving forward. We expect deposit rates to move within a tight band in the short term. 

The open market continued to be tranquil last week with no new transactions. Interbank interest rates were stable, at 0.19% per annum for the overnight term and 0.23%/ year for the 1-week term. Following the cue of state-owned commercial banks in Vietnam, many JSCBs also reduced their deposit rates by 10-20 bps, narrowing the deposit rate gap to the smallest degree between bank groups in recent years. Currently, deposit rates remain at 2.5-3.8%/ year for under 6 month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. These rates ranged 150- 300 bps lower than the end of 2019. The liquidity of commercial banks looks to be vibrant moving forward, but the possibility of further deposit rate reductions is quite low. We expect deposit rates to move within a tight band in the short term.

Interbank interest rate inched up. The open market was characteristic of placid waters yet again last week, with no new transactions. Interbank interest rates inched up by 3-4 bps at 0.2% per annum for the overnight term, and 0.25%/ year for the 1-week term. BIDV reduced its interest rate by -20 bps for less than 12 month deposits, aligning to the same level as VCB. Other banks kept their deposit rates unchanged, at 2.5-3.8%/ year for under 6 month terms, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms. According to the State Bank of Vietnam, as of November 17^th 2020 total credit was about VND 8.79 quadrillion. This +7.26% expansion YTD was markedly lower than the same period in 2019 of 10.28%. The liquidity of commercial banks looks to be vibrant moving forward, and deposit rate movement is expected to be within a tight band in the short term.