Macro Report

The SBV returned to pump liquidity via open market operations. The SBV returned to provide liquidity to the money market last week via open market operations, with a net pump of VND 54.8 tn in total. In details, VND 50.5 tn worth of 7-day reverse repos was issued at 4.5% p.a (unch) out of VND 24.8 tn expired, while there was VND 33.6 tn of 14-day bills being utilized at 4.5% (unch) out of VND 62.4 tn expired. The overnight rate remained elevated for most of the week at 4.8%, but cooled down a bit on Friday, to 4.5% (-30 bps WoW).

The SBV accelerated bill issuance to counter exchange rate pressure

Liquidity was well provided, and was only impacted by the quarter-end factor at the last trading week of June,

The interbank interest rate hovered around the 4.0% - 5.0% range, while the deposit rate hike trend is slower

The unofficial parallel USD/VND rate climbed to historical highs, and SBV must utilize aggressively FX sales to counter

Government bond yields were flat for both primary and secondary market, w/ demand concentrated in the 10Y tenure

The SBV returned to soak up excess liquidity. After a week of pumping liquidity into the banking system, the SBV soaked up excess liquidity thereafter. Overall, there was VND 21.1 tn withdrawn via open market operations. In details, VND 55.65 tn worth of 14-day SBV-bills was issued at 4.5% p.a (unch) out of VND 37.36 tn expired, while there was VND 24.8 tn of 7-day reverse repos being utilized at 4.5% (unch) out of VND 27.5 tn expired. The overnight rate remained elevated, at 4.5-4.8% for most of the week.

Quarter-end factor continued to weigh on systemic liquidity. The SBV over the last week had actively utilized open market operations to manage liquidity in the banking system. For most of the week, the SBV accelerated bill issuance at a gradually higher rate to deal with higher exchange rate pressure. Altogether, VND 55 tn (+79% WoW) worth of 14-day SBV-bills was issued, and the winning rate ticked up gradually to 4.5% (+25 bps WoW) as of Friday. However, the end-of-quarter cyclical factor again impacted money market movement in the later part of the week, as market participants closed out their books for the quarter. Not surprisingly then, there was VND 27.5 tn of 7-day reverse repos being utilized, mostly on Friday. The overnight rate briefly hit an outlier having surged to 4.8% as of Friday, while having kept at around 3% to 3.5% for most of the week.

Overnight rate slid reflecting abundant liquidity. The SBV continued to withdraw liquidity out of circulation via open market operations and USD spot sales last week. In details, SBV-bill issuance was accelerated to soak up excess liquidity and a total of VND 30.7 tn issued, out of VND 2.7 tn expired. Liquidity was sufficient enough and banks did not utilize the reverse repos channel, though SBV was regularly offering VND 3 tn per day. Around $440 mn USD (VND 11.2 tn) in spot contracts were sold to banks to serve market demand. The SBV withdrew VND 44.3 tn in total. Overnight interbank interest rates cooled down to 3.5% p.a. (-100 bps), and average daily trading turnover slightly ticked up to VND 285 tn (+9.2% WoW).

The SBV has actively issued both bills and reverse repos to manage liquidity in the banking system

Liquidity improved in May, the interbank interest rate stayed at around 4% for most of May

Deposit rates rose across the board by up to 100 bps

The USD/VND climbed to historical highs, but the VND strengthened once SBV utilized aggressively its intervention tools

Government bond yields increased significantly in primary market due to weak demand while secondary yields were flat

Calm money market activities. Last week, there were not many activities in the money market as liquidity kept at abundant thought the SBV withdrew a large amount of VND via reverse repos expiration. In details, there was a mere VND 1.25 tn of 7- day term reverse repos issued to cover for VND 70 tn expired. At the same time, the SBV issued VND 28.46 tn of 28-day SBV-bills over VND 33.94 tn coming due.  Altogether, the SBV has another week of withdrawal (VND 63.3 tn) via open market operations. Overnight interbank interest rates stayed stable at around 4% for most of the week and average daily trading turnover did not see any significant volume.

Weak credit growth in May. Last week, liquidity improved as a whole, and there was not much activity in terms of open market operations. Overall, the SBV withdrew a large amount of VND via SBV-bill issuance. In details, there were only VND 11.68 tn of 14 day term reverse repos issued to cover for VND 27.89 tn expired. At the same time, the SBV accelerated the amount of 28 day term SBV-bill issuance (VND 30.2 tn in total, at a slight higher rate 4.25%, +5 bps). Altogether, the SBV withdrew VND 39.7 tn out of circulation via open market operations. At the same time, the SBV sold $300 mn worth of USD spot contracts. Overnight interbank interest rates decelerated to around 3% as of Friday (-200 bps), and average daily trading turnover remained flat, at around VND 300 tn per day.

The SBV raised the reverse repo rate for the second time. Last week, liquidity in the system has been constrained, but not yet concerning and there was a large amount of VND withdrawing via FX spot contracts. The SBV actively utilized reverse repos in open market operations at a longer term (14 days, instead of 7 days as usual) to support liquidity. In total, there was VND 97.971 tn worth of reverse repos to be issued at a higher rate of 4.5% p.a, while only VND 2.7 tn of 28-day SBV bills issued to cover for VND 11.4 tn expired. Altogether, the SBV injected VND 99.165 tn into circulation via open market operations. At the same time, the SBV sold $1.87 bn worth of USD spot contracts. Overnight interbank interest rates increased gradually to 5.0% (+100 bps WoW) as of Friday and average daily trading turnover improved to VND 296.9 tn (+10.3% WoW).

FX spot contracts have been reactivated. The money market remained calm last week, even as a large degree of liquidity was withdrawn via FX and gold spot sales. For open market operations, there was VND 7.5 tn worth of reverse repos rolled over for the next 7 days at 4.25% p.a., while only VND 6 tn of 28-day SBV bills issued to cover for VND 13.1 tn expired. Interestingly, the SBV raised the yield for bills to 3.85% on Friday (+10 bps vs. the last winning rate), signaling another possible rate hike for a reverse repo rate in the coming time. Altogether, the SBV injected VND 7.267 tn into circulation.

A significant amount withdrawn via open market operations. Unlike our expectation, even as there was a large amount of reverse repos that had expired, the money market was still quite calm last week. Liquidity in the banking system was manageable, leading to a net liquidity withdrawal via open market operations.  As of Friday, only VND 7.4 tn of 7-day reverse repos was issued at 4.25% p.a. At the same time, a significant amount of SBV bills (VND 33.94 tn) rolled over for the next 28 days at 3.75% p.a.  In terms of expiration volume, there was a total of VND 25.25 tn in SBV-bills and VND 118.364 tn of reverse repos came to expire last week. Altogether, the SBV withdrew VND 119.7 tn out of circulation. Overnight interbank interest rates stayed at around 4.2% (-6 bps WoW) for most of the week.

Calm market after the long holiday. The money market was quite calm after the long holiday. There were only 2 trading days last week, and liquidity in the banking system was manageable, leading to a net liquidity withdrawal via open market operations.  As of Friday, only VND 559 bn of 7-day reverse repos was issued at 4.25% p.a. At the same time, VND 6.7 tn worth of SBV bills rolled over for the next 28 days at 3.75% p.a.  In terms of expiration volume, there was a total of VND 1.6 tn in SBV-bills came to expire last week. Altogether, the SBV withdrew VND 4.5 tn out of circulation. Overnight interbank interest rates cooled down to 4.36% (-24 bps) as of Friday. This week, there will be a large amount of reverse repos expired (VND 118.4 tn) so pressure on liquidity might be heightened.

Overnight rates surged in response to a long holiday. The money market was quite active last week. Liquidity remained tight before the weekend leading up to the long public holiday, and the SBV accelerated to inject liquidity via reverse repo facility in open market operations. As of Friday, a total of VND 117.8 tn at a longer term (14 days, instead of 7 days in the week before) was issued. Interestingly, the central bank raised the 14-day reverse repo rate to 4.25% p.a, from 4.0% previously. At the same time, VND 11.4 tn worth of SBV bills rolled over for the next 28 days at a slightly higher winning rate of 3.75% p.a (+5 bps).  In terms of expiration volume, there was a total of VND 26.5 tn in SBV-bills and VND 32.86 tn in reverse repos that reached expiry last week. Altogether, the SBV pumped VND 100 tn into circulation. Overnight interbank interest rates spiked again, to 4.8% (+90 bps) as of Friday.