Macro Report

A full VND 171.5 tn of corporate bonds (C-bonds) were issued in 1H 2020 - a blistering increase of +61.3% YoY and well outstripping the 37% growth rate of 2019. Real estate companies and commercial banks accounted for nearly 70% of issuance volume. The 2Q 2020 average coupon rate (excl. bank bonds) decreased -14 bps QoQ. Meanwhile, the proportion of floating coupons increased whilst interest adjustment and payment periods contracted. This trend during the quarter was most evident in real estate bonds. Commercial banks bought VND 38.4 tn of corporate bonds or 22% of total issuance volume by non-bank institutions in 1H 2020. Commercial banks particularly sought real estate bonds, absorbing VND 28.2 tn or 73.4% of the total bonds that banks purchased. Individuals purchased VND 23 tn on the primary market in 1H 2020 - equivalent to 13.4% of total issuance volume and equal to 79% of the total purchase volume of individual investors in 2019. Decree 81/2020/ND-CP is a revision upon Decree 163/2018 / ND-CP that takes effect from September 1st 2020, and creates a stricter legal framework for private placement of corporate bonds. The corporate bond market may continue to heat up in July and August 2020. After Decree 81 takes effect in September though, bank credit should return as the primary funding channel for companies, especially real estate companies. The secondary market will remain active, due to the attractive gap between corporate bond yields and deposit rates.

The SBV this week continuously bought foreign currencies, as it has done so in the past two weeks. A total of about $2 bn USD was pumped into the banking system - an equivalent of more than VND 46 tn. Naturally, commercial banks continued to be still flush with cash. Interbank interest rates went sideways at 0.26% per annum for the overnight term, and 0.35% per annum for the 1-week term. As of July 28, 2020, credit growth was only 3.45% YTD, and YoY less than half (2019 equivalent was 7.31% YTD). Due to stagnant credit growth and struggling businesses dealing with the second Covid-19 wave, the SBV issued Document No. 5596/NHNN-VP, which requires credit institutions to reduce operating costs and trim profits to continue lowering the actual lending rate for both existing and new loans. After a sharp decline in June and July 2020, deposit rates stabilized at 3.15%-4.25% for terms of less than 6 months, 4.4-6.5% /year for terms of 6 to under 12 months, and 5.5-7.3% /year for terms of 12-13 months. We expect that deposit rates can be further reduced by about 50-70 bps for terms below 12 months and 20-30 bps for terms from 12 months or more from now to the end of this year.

The SBV refrained from making any transactions last week. Liquidity was maintained at ample levels, and interbank interest rates fluctuated in low areas throughout July. At the end of the month, average overnight interest rates were at 0.3% per annum, and the 1-week interest rate was 0.39% per annum, inching up by +10 bps and + 9bps WoW respectively.  Last week, Techcombank reduced its deposit rates by a factor of 75-90 bps across all terms, whereas VPBank continued to reduce its deposit rates for more than 6-months by a factor of 20-30 bps. Thus, deposit rates up to 7M 2020 were lowered by 1-2% YTD in most commercial banks. On an average basis, deposit rates of commercial banks in the first 7 months of the year decreased by 70-90 bps for terms of less than 12 months. The drop amounted to about 100 bps among terms of 12 months or more compared to the average deposit rates in 2019.

The open market continued to be placid last week with no new transactions, and only 6.4 billion VND was withdrawn into the open market via matured reverse repos. Liquidity was maintained at ample levels, and interbank interest rates were stable, closing the week at 0.2% per annum for the overnight term, and 0.3% per annum for the 1-week term. Last week, VPBank reduced its deposit rates for more than 6-months by a factor of 45-50 bps last week; a total drop of -60 bps from the beginning of July to now. Currently, deposit rates range from 3.5%-4.25% for terms of less than 6 months, 4.4-6.7% /year for terms of 6 to under 12 months, and 5.5-7.3% /year for terms of 12-13 months. Reacting to sharp USD depreciation, the State Bank may consider lowering policy rates ahead to further reduce deposit and lending rates, thereby facilitating credit output and providing support to the economy.

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. Liquidity was maintained at ample levels, and interbank interest rates were stable, closing the week at 0.21% per annum for the overnight term and 0.32% per annum for the 1-week term. According to the GSO, 2020 deposit growth as of June 19th was 4.35% YTD, nearly double credit growth. The dovish policy of the SBV coupled with an increasingly yawning gap between deposit growth rate and lending growth rate  has rendered commercial banks flush with liquidity. Interbank interest rates will likely continue to move sideways, although this should be read within the context that these rates have already fallen by 1.6-3.4%/year compared to 2019. Last week, there are more banks that has opted to lower their deposit rates. Currently, deposit rates range from 3.5%-4.25% for terms of less than 6 months, 4.4-6.7% /year for terms of 6 to under 12 months, and 5.5-7.5% /year for terms of 12-13 months. These deposit rates are 0.75% -1% lower this year for terms of less than 6 months, and 1% -2% lower this year for terms of 6 months or more (when compared with the end of 2019).

Nationwide corporate bond (C-Bond) issuance YTD has been VND 159 tn ($6.82 bn USD)- up +50% compared to 1H2019. Individual investors have purchased VND 22.7 tn corporate bonds in the primary market, equivalent to 15% of total corporate bond issuance, and higher than the approx. 10% average for 2019. C-Bonds have been drawing a significant amount of attention from retail, competing most directly with banking deposits. Annual corporate bond yields were 0.8-1.7% higher than most annual deposit rates, and 1.8-4.0%/year higher than four competing deposit rates from state-owned banks. C-Bonds held by non-credit institutions and individuals amounted VND 385 tn, equal to 4.2% of total banking deposits and equivalent to the deposit scale of Sacombank – the largest private in Vietnam. As a result, C-Bond competition could make deposit rates much more ‘sticky’ in 2H 2020. There is still no independent organization that issue ratings for corporate bonds in Vietnam, so at present it is up to individual buyers to make their own evaluations. The recent sharp increase in corporate bond issuance could be further accelerated before in the form of Decree 81/2020/NĐ-CP (effective from Sep 1st, 2020, revision of Decree 163/2018/NĐ-CP), which impose tighter regulations on the private placement of corporate bonds.

Last week, the open market and the interbank market remained quiet as the industry officially entered Q3. The SBV net injected only 1 bn VND through 7-day reverse repos, at an interest rate of 3% per annum. Interbank rates went sideways, closing the week at 0.21% per annum for the overnight term and 0.3% per annum for the 1-week term. Many commercial banks simultaneously reduced deposit rates from 10-90 bps starting July 1, 2020, setting the tone for Q3. The 4 state-owned commercial banks leading the rate cut charge are doing so with a reduction of 25-30 bps for terms of less than 6 months, and 50 bps for terms of 6 months or more. Some banks with a larger reduction (50-90 bps) include names such as TCB, ACB, and TPB. Commercial banks often go neck and neck with competitive deposit rates (such as VPB, SHB, and HDB), decreasing their rates by 10-30 bps. This is the largest interest rate cut yet, and continues the downtrend from the end of 2019 to now.

The open market continued to be tranquil last week, with no new transactions. Reverse repos and the T-bill balance were also kept at zero. Liquidity was maintained at ample levels, whereas interbank interest rates declined slightly, closing the week at 0.21% per annum (-4 bps) for the overnight term and 0.32% per annum (-8 bps) for the 1-week term. 

Interbank interest rates and deposit rates tranquil: In the last 2 months, the State Bank of Vietnam has not conducted any new transactions on the open market. Instead VND has entered circulation via matured T-bills. Last week was not an exception, as the SBV only pumped out 2 tn VND, while all 147 tn VND of 91-day T-bills issued in 1Q 2020 came due. Liquidity was maintained at ample levels, whereas interbank interest rates declined slightly, closing the week at 0.375% per annum (-5 bps) for the overnight term and 0.5% per annum (-10 bps) for the 1-week term. 

Both interbank interest rates and deposit rates continued to fall. Last week, 25 tn VND worth was pumped into the open market via matured T-bills, and the State Bank did not conduct any new transactions. Liquidity maintained at ample levels, whereas interbank interest rates declined slightly, closing the week at 0.43% per annum (-6 bps) for the overnight term and 0.6% per annum (-15bps) for the 1-week term. At current, the liquidity of commercial banks is quite stable, and interbank rates are likely to remain sideways. Later on, these may inch up towards the end of the month to meet the liquidity indicators at the end of 2Q 2020. According to SBV, credit growth as of May 29, 2020 is 1.96% YTD - higher than the rate of 1.42% YTD at the end of April. So, after the contraction in the first half of May, credit growth was positive in the second half of May. However, it’s worth noting that this was still very low compared to the growth rate of 5.8-7.0% in the same period from previous years. Meanwhile, deposit growth flourished since April despite the deposit rate being down significantly. Last week, Vietcombank reduced its deposit rates by -20 bps to the same level as BIDV, Agribank, and Vietinbank (6% per annum for 12-13 month terms). As we expected, other commercial banks also cut 10-30 bps across deposit rates for all terms.  Currently, deposit rates are from 3.5% -4.25% for terms of less than 6 months, 4.9-6.9%/ year for terms of 6 to under 12 months, and 6.0-7.6%/year for terms of 12-13 months. 

Deposit rates declined by 30-50 bps at some large banks. Last week, the State Bank of Vietnam net injected 11 tn VND on the open market, including 10.998 tn VND worth of matured T-bills and 2 billion VND worth of new reserve repos. Interbank liquidity remained abundant, while interest rates were generally almost flat, closing the week at 0.49% per annum (-4 bps) for the overnight term and 0.75% per annum (+ 2 bps) for the 1-week terms. Thus, the interbank interest rate dropped from 170-180 bps in May 2020, bringing the interest rate to the lowest level seen in the past 4 years. Bank liquidity was strongly supported via 100 trillion VND worth of matured T-bills. This week, there are 25 tn VND of T-bills that have come due, and interbank interest rates may remain at these mid-term record lows.

Interbank interest rates continue a deep decline. Last week, the State Bank of Vietnam did not conduct any new transactions on the open market. There was 22.997 tn VND worth of T-bills and 3 billion VND in reverse repos that had come due. Overall, the SBV net injected 22.994 tn VND through the open market. Abundant liquidity led the interbank interest rate down sharply, closing the week at 0.53% per annum (-82 bps) for the overnight term and 0.73% per annum (-76 bps) for the 1- week term. The VND-USD interbank interest rate gap narrowed to 0.4% from 1.2%/year. Deposit interest rates remained unchanged at 4.1-4.25%/ year for terms of less than 6 months, 5.1-7%/year for terms of 6 to under 12 months, and 6.1-7.4%/year for terms of 12-13 months.