Macro Report

Interbank interest rate inched down. The open market continued to be tranquil last week with no new transactions, and only 1 billion VND was withdrawn into the open market via matured reverse repos. However, the SBV bought about $1.5 billion USD, and an equivalent of VND 35 trillion was thus pumped into the banking system. Commercial banks remained flush with cash, and interbank interest rates inched down by 3-4bps at 0.16% per annum for the overnight term, and 0.21%/ year for the 1-week term. Deposit rates also remained 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. 

Stable interest rates. Last week, the SBV net injected 1 bn VND through 7-day reverse repos, at an interest rate of 2.5% per annum. However, the SBV bought more than 1 billion USD, and an equivalent of above VND 24 trillion was thus pumped into the banking system. Commercial banks remained flush with cash, and interbank interest rates were stable at 0.19% per annum for the overnight term and 0.25%/ year for the 1-week term. Deposit rates also remained 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 see that both interbank interest rates and deposit rates will remain largely unchanged in the near future.

A quiet week. Last week, the open market followed the recent pattern of sans new transactions. Interbank interest rates were stable at 0.19% per annum for the overnight term, and 0.25%/ year for the 1-week term. Deposit rates also remained 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. Credit growth up to Oct is estimated at 6.5% YTD, only slightly higher than 6.09% YTD up to September 2020. Deposit growth has been much better, though, which led towards liquidity of commercial banks still being abundant despite the year closely coming to a wrap. Hence, we see that both interbank interest rates and deposit rates will remain largely unchanged in the near future.

The deposit rate gap between industry banks was gradually narrowing. Last week, the open market once again went without new transactions. The interbank interest rate remained at 0.17% per annum for the overnight term, and 0.22%/ year for the 1-week term. Deposit rates declined by 10-20 bps at MBB & HDB, while declining by 40-50 bps at TPB & VPB, resulting in a narrowing effect in terms of the deposit rate gap between domestic industry banks. Deposit rates were at 2.5-3.8%/ year for terms under 6 months, 3.7-5.0%/ year for 6 to under 12 month terms, and 4.9-5.6%/ year for 12 and 13 month terms.

Decree 81 caused companies to speed up issuance process in July and August 2020, whereas private placements in September plummeted -84% QoQ. Q3 corporate bond issuance volume was VND 164.4 tn (+95% YoY), whereas cumulative issuance up to Q3 was VND 341 tn (+79% YoY). Issuance volume up to Q3 accounted for 98% of total offering volume, which shows high market demand for corporate bonds. Real estate companies issued VND 137.5 tn, equivalent of 40.3% of annual issuance volume up to Q3 - accounting for the highest proportion of the whole market. Banks issued VND 36 tn of Tier-2 bonds in order to improve their CAR ratios. The energy corporate bond segment increased its proportion, making the average bond term duration longer. Investors should be cautious with unsecured corporate bonds, or those guaranteed by stocks. In Q4, companies will return back to the bank credit channel, as it has become more difficult to for public placements due to tight issuance conditions and the more time-consuming procedure. Corporate bond credit rating activities will be promoted. The secondary corporate bond market is still very active, however, due to low deposit interest rates.

Last week, the open market again went without new transactions. The interbank interest rate remained at 0.17% per annum for the overnight term, and 0.23%/ year for the 1-week term. Deposit rates also were stable at 3-3.8%/ 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. As of September 14^th 2020, commercial banks have rescheduled repayment periods amounting a total of VND 321 tn (3.7% of total loans); exempted, reduced interest rates for VND 1,180 tn (13.7% of total loans) of outstanding loans affected by Covid-19. Recently, the State Bank of Vietnam issued document No. 7751/NHNN-TD requesting commercial banks to support customers damaged by floods in the Central and Central Highlands regions. In this quater, we expect the deposit rates to remain low because the ability to absorb capital of the economy is still quite modest and the SBV still emphasizes reducing interest rates to help commercial banks have enough resources to support the economy.

A quiet week. Last week, the open market was yet again sans new transactions. The interbank interest rate remained at 0.175% per annum for the overnight term, and 0.225%/ year for the 1-week term. After a sharp decline in the first week of October, deposit rates were stable last week. Rates remained close in terms of movement, at 3-3.8%/ 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.

Deposit rates fell sharply at many large banks. Last week, the open market again went without new transactions. The interbank interest rate remained at 0.175% per annum for the overnight term, and 0.225%/ year for the 1-week term. Deposit rates dropped by 20-40 bps at some large commercial banks (BID, CTG, VCB, VPB), but jumped up by  85 bps for 12-month or more deposits at HDBank. HDBank's long-term deposit rates are 2% higher than that of SOCBs, and are among the highest in the market, possibly to increase funding for renewable energy project lending. Deposit rates are at 3-3.8%/ 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. Although the Covid-19 epidemic has been well controlled domestically and the market has entered the peak quarter, credit growth is still weak and much lower (about 2%) compared to deposit growth. Hence, we see both interbank interest rates and deposit rates to remain largely unchanged in the near future, with a narrow band of fluctuations characterizing forward movement.

As of October 1st 2020, the SBV has cut by -50 bps OMO reverse lending rates, the discount lending rate, refinancing rate and interbank clearing lending rate. There has been a -25 bps adjustment to the cap on 1 month to under 6 month deposit rates (4%/ year), and a -50 bps adjustment to the cap on short-term loans to priority sectors (5.5%/ year). Despite the policy rate changes, the open market went without new transactions, and the interbank interest rate inched down to 0.17% per annum (-10 bps) for the overnight term and remained at 0.23%/ year for the 1-week term. The deposit rates of some small commercial banks were reduced by 20-30 bps, but 4 SOCBs and most other banks still kept their deposit rates unchanged. According to the SBV, for the first 9 months of 2020 the credit growth rate posted 6.09% YTD. This is much lower than the growth rate as of September 2019, 9.4% YTD, but this is surprisingly fast compared to the growth rate of only 4.81% announced on September 16, 2020.  In more detail, the credit growth of priority sectors also grew well: exports (+ 7% YTD), agriculture and rural areas (+ 5% YTD), SMEs (+ 5.5% YTD). The SBV forecasts that 2020 credit growth can reach 8-10%, which means there will be about VND 150-320 tn worth of additional credit in 4Q 2020. However, we still saw gloomy credit growth of large commercial banks (BID: 2.9% YTD, CTG: 2-2.5% YTD), and deposit rates could decline further by 10-30 bps in 4Q 2020.

The SBV yet again refrained from making any transactions on the open market, and interbank interest rates were stable at 0.18% per annum for the overnight term and 0.23% per annum for the 1-week term. According to the State Bank of Vietnam credit growth as of September 16th was only +4.81% YTD (about +8.9% YoY) and well below the central bank’s initial target (14%, revised target: under 10%). This is despite the fact that even the lending rate has undergone a significant cut, credit growth as well as demand for credit is still quite weak. Even for priority sectors (such as SMEs, agriculture, and exports), credit growth was just only 3-4%, and much lower than the headline number. This is the main reason causing deposit rates to drop sharply, and may continue to decrease by 10-30 bps in the near future.

The SBV refrained from making any transactions on the open market, and temporarily sat on the sidelines in terms of USD purchases in the last 2 weeks. Interbank interest rates inched down, closing the week at 0.16% per annum (-3 bps) for the overnight term, and 0.21% per annum (-2 bps) for the 1-week term. Per our forecast, deposit rates continued to fall across many banks. The 4 dominant state-owned commercial banks trimmed rates by 10-30 bps, while other banks cut by a greater spectrum of 10-60bps across all terms. Year to date, deposit rates have decreased by a total of 100-250 bps across most commercial banks. There are growing expectations that the SBV is increasingly likely to lower its policy rates as well. However, deposit rates under 6-months is currently at 2.85% -3.85%/year, which is much lower than the ceiling of 4.25%/year. The important policy rates under the SBV umbrella, such as reverse repo rates and the T-bills rate, has also been much higher than interbank interest rates. Therefore, space for monetary policy is relatively limited, and actions intended to support growth will likely turn more towards fiscal policy measures.

The SBV yet again kept its powder dry, and refrained from executing any transactions on the open market last week. Interbank interest rates were stable, closing the week at 0.2% per annum for the overnight term and 0.23% per annum for the 1-week term. Deposit rates remain at 3.0%-4.1% for terms of less than 6 months, 4.2-6.0% /year for terms of 6 to under 12 months, and 5.0-6.7% /year for terms of 12-13 months. According to the SBV, total M2 money supply in Vietnam was VND 11.16 quadrillion at the end of July 2020. This was a rise by 5.58% YTD, which is much lower than the 7-8% increase from the same period back in 2017-2019. Therefore, the dovish monetary policy of the State Bank is likely to be maintained, and liquidity of commercial banks has accordingly remained abundant. Interbank interest rates are expected to be flat, whereas deposit rates can be further reduced from 10-30 bps, likely to occur in the near future.

The SBV refrained from making any transactions on the open market last week. Interbank interest rates were flat, closing the week at 0.19% per annum for the overnight term, and 0.24% per annum for the 1-week term. Deposit rates were stable in the first week of September, currently at 3.0%-4.1% for terms of less than 6 months, 4.2-6.0% /year for terms of 6 to under 12 months, and 5.0-6.7% /year for terms of 12-13 months. Even as deposit rates dropped by a total of 50-210 bps YTD across all terms, consumers and businesses still responded with a robust amount of deposit growth, as rates were still considered reasonably attractive. As of August 31, 2020, deposit growth was about 7% YTD, outstripping credit growth (approximately 5% YTD). So, deposit rates may continue to decline slightly in the coming time.

Deposit rates fell yet further in the sector. During August to date, the State Bank so far has not conducted transactions on the open market. However, it continuously bought foreign currencies, amassing a total of about $3.3 bn USD. Through these actions, an equivalent of more than VND 76 tn was pumped into the banking system. Commercial banks remained flush with cash. Interbank interest rates dropped by -8 bps to 0.16% per annum for the overnight term, and settled in at 0.25% per annum for the 1-week term. Last week, Vietcombank further reduced its deposit rates by -20 bps for terms of 12-13 months to 5.3%/year - lower than the deposit rates of BIDV, Agribank and Vietinbank. MBBank and Techcombank also further cut deposit rates by 10-30bps for all terms, and is currently lower than 4 SOCBs. Thus, commercial banks have decreased deposit rates by a factor of 20-40bps for short terms and 0-20 bps for long terms in August 2020. YTD, deposit rates have dropped by a total of 50-210 bps across all terms. However, banking deposit growth was quite good, outstripping credit growth. So, deposit rates may continue to decline slightly in the coming time.

The open market was still placid last week, and featured no new transactions. However, the SBV continued on to buy about $800 million USD, and an equivalent of about VND 18.5 tn was pumped into the banking system. Commercial banks remained flush with cash. Interbank interest rates dropped by -2 bps to 0.24% per annum for the overnight term, and settled in at 0.35% per annum for the 1-week term. On August 14, 2020, the SBV issued Circular 08/2020, a revision of Circular 22/2019. It allowed for a 1-year delay to the national roadmap to reduce the ratio for short-term funds used for medium- and long-term lending (ratio to be gradually reduced, from 40% currently to 37% on October 1, 2021; 34% on October 1, 2022 and 30% on October 1, 2023). As a result, commercial banks will have more resources to expand medium- and long-term lending for their customers.