Macro Report

Last week, the State Bank of Vietnam lowered its policy rates, short-term deposit cap, and lending rate cap all by 50 bps. This means that these rates have decreased by 100 bps in total within 2 months, reflecting the recent trend of monetary easing. The SBV only offered 2 small reverse repo transactions with a total value of VND 3 billion, and the reverse repo rate was reduced to 3%/year from 3.5%/year. There was VND 24.998 tn worth of T-bills which had come due, and T-bills outstanding dropped to VND 61 tn. Overall, the SBV net injected VND 25 tn through the open market. The interbank interest rate eased down greatly, closing the week at 1.35% per annum (-53 bps) for the overnight term and 1.5% per annum (-60 bps) for the 1- week term. The VND-USD interbank interest rate gap narrowed to just 1.3%/year. 

Interbank interest rates fell sharply thanks to expectation of a decrease in policy rates. Last week, the State Bank of Vietnam did not conduct any new transactions on the open market. There was nearly 36 tn VND worth of T-bills and 1.05 billion VND in reverse repos that had came due. Overall, the SBV net injected 35.997 tn VND through the open market. Abundant liquidity led the interbank interest rate down sharply, closing the week at 1.88% per annum (-37 bps) for the overnight term and 2.1% per annum (-35 bps) for the 1- week term. The VND-USD interbank interest rate gap narrowed to 1.7% from 2.0%/year.   

Last week, the State Bank did not conduct any new transactions on open market. There was 10 trillion VND worth of T-bill and 1.03 billion VND in reverse repos that had came due. Overall, the SBV net injected 9.999 trillion VND through the open market. Stable liquidity led to the interbank interest rate panning out, closing the week at 2.25% per annum (+6 bps) for the overnight term and 2.45% per annum (-1 bps) for the 1- week term. Deposit rates were unchanged at most banks. A few banks, such as MB Bank, reduced deposit rates by -30 bps. On the flip side, there were also banks, such as VP Bank, which had raised its deposit rates by 20 bps for a term of 6 months or more. Currently, deposit interest rates are at 4.1-4.75%/ 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.

Last week, there was only VND 1.05 billion in 14-day reverse repos, while a large amount of reverse repos via T-bills came due. Overall, the SBV net injected VND 10.3 trillion through the open market. The drop in liquidity led to an increase of interbank interest rates, closing the week at 2.19% per annum (+42 bps) for the overnight term and 2.46% per annum (-44 bps) for the 1- week term. According to information from the State Bank of Vietnam, commercial banks lowered their lending interest rates from 0.5% -2.5% / year for an aggregate VND 948.4 trillion of outstanding loans and VND 511.2 trillion of new loans. Despite the sharp drop in lending rates, credit growth for the first half of April 2020 creeped upwards by 0.8% YTD while it increased by 1.3% YTD at the end of March 2020. Loan balances in mid-April thus were lower than at the end of March (about VND 41 trillion).

Last week, there was only a scant VND 1.03 billion in 14-day reverse repos, while a large amount of reverse repos came due. Overall, the SBV net withdrew VND 20.8 tn through the open market. Stable market sentiment and abundant liquidity rendered a decline in interbank interest rates, closing the week at 1.77% per annum (-36 bps) for the overnight term and 2.02% per annum (-37 bps) for the 1- week term. According to information from the State Bank of Vietnam, total deposits as of the end of February 2020 was VND 8.79 quadrillion, -0.03% YTD compared to a + 0.87% YTD reading back in February 2019. Financial institution deposits always decline in Vietnam during February each year due to payment and spending needs for the Lunar New Year, and it is often offset by higher deposit growth from individuals. But by the end of February this year, financial institutions reported a decrease in client deposits by about VND 192 tn, while deposits from individuals only increased by VND 187 tn. We clearly see that a contraction of economic activity due to the Covid-19 epidemic at that time had reduced not only credit output but also customer deposits in general. 

Last week, the State Bank of Vietnam continued net injecting VND 4.7 tn worth through its 14-day reverse repo channel at an interest rate of 3.5% per annum. After 2 weeks of net injecting VND 25.5 tn worth via the reverse repo channel, banking system liquidity was satisfied and interbank interest rates quickly cooled down. The week closed at 2.13% per annum (-119 bps) for the overnight term and 2.38% per annum (-106 bps) for the 1- week term. According to information from the SBV, credit growth in 1Q 2020 was +1.3% YTD - equivalent to about VND 106.5 tn of new loan issuance. Despite being the lowest level in the past 6 years, the disbursement speed improved in March, as credit growth at the end of February was only +0.07% YTD. In 2020, the SBV expects an additional credit balance for the economy ranging from VND 900 tn to 1.1 quadrillion VND, which would be a credit growth rate of 11-14% YTD.

Last week, the State Bank net injected about VND 20.84 tn through its 14-day reverse repo channel at an interest rate of 3.5% per annum. This marked the first effective period in which reverse repo transactions resumed, after more than 3 consecutive months with almost no activity for reverse repo transactions. Interbank liquidity tightened a bit, especially over the weekend due to the demand for VND to ensure required reserves by the beginning of the month. Interbank interest rates thus jumped, closing the week at 3.32% per annum (+114 bps) for the overnight term and 3.44% per annum (+ 117bps) for the 1- week term. The VND-USD interest rate gap widened to 2.2-2.4%/year.

Last week, there was only VND 1.09 bn in 7-day reverse repos, offsetting the VND 1.05 bn that came due. The number of outstanding T-bills remained at VND 147 tn, and the SBV halted withdrawals on the open market in the last 3 weeks. Liquidity of commercial banks was stable, and interest rates in the interbank market went sideways, closing the week at 2.18%/year (+6 bps) for the overnight term and 2.28%/year (-11 bps) for the 1- week term. The overnight rate differential of VND-USD was maintained at 1.3-1.4%/year.

Last week, only VND 1.05 bn was pumped out through the 7-day reverse repo channel. The SBV stopped issuing T-bills in the last 2 weeks after having continuously carried out net withdrawals via this channel in the previous 6 weeks. The number of outstanding T-bills remained at VND 147 tn. Along with that, the SBV issued new policy rates effective as of March 17, 2020, influencing the including refinancing interest rate and the interbank clearing lending rate, both of which decreased by 100bps; the OMO reverse repo lending rate, which led the discount lending rate to drop by 50bps; a mandatory deposit rate cap for bank deposit terms of less than 6 months, down by 25-30 bps; a cap in VND-denominated short-term lending to 6 priority sectors, which decreased by 50 bps; and increased interest rates payable to required reserves in VND, by 20 bps.

Last week, the reverse repos channel has VND 10 bn approaching maturity, with no new transactions. The SBV continued to issue VND 24.996 tn in 91-day T-bills at an interest rate of 2.65%. After 6 consecutive weeks of net withdrawal, the number of outstanding T-bills approached VND 145 tn at present. The amount of STV bonds maturing in the first 2 months of this year greatly exceeded the amount of bonds issued. Interbank interest rates dropped again, closing the week at 2.08% p.a. (-18 bps) for the overnight term and 2.3% p.a. (-23 bps) for the 1-week term. Currently, the Vietnamese government has announced a VND 250 tn credit support package, with low interest rates and a fiscal support package (postponement and extension of financing) of nearly VND 30 tn. The IFC (member of World Bank) has increased the trade finance limit for ABBank, TP Bank, VIB, and VP Bank to $294 mn USD (up $50 mn USD compared to the old limit). VND-denominated liquidity of commercial banks is expected to continue to be abundant, while interest rates are likely to continue to decrease in the interbank market unless there is a significant change in the STV balance domestically deposited in banks.

Last week, the SBV continued to issue VND 10.998 tn of 91-day T-bills, at interest rates of 2.65%. The number of outstanding T-bills nearly approached VND 120 tn at present – the highest level since July 2018. The reverse repos channel has VND 21 bn that are mature coming due, and VND 10 bn for new transactions. In general, the SBV net withdrew about VND 11 tn during the week, closing out the month with net withdrawals of nearly VND 95 tn, equivalent to the amount of VND that SBV injected into the market through foreign currency purchases in January 2020.  Interbank liquidity was quite stable as interest rates rose slightly in the middle of the week, but then dropped again, closing the week at 2.25% p.a. (+9bps) for the overnight term and 2.53% p.a. (+15bps) for the 1-week term.

Given the characteristic of high volatility in the global market, and the fact that the Covid-19 outbreak outside China is all on watch across countries, we believe that the focus might be also on i) the toll on 1Q 2020 earnings and ii) any further support from the Vietnamese government, especially when the US Federal Reserve might cut its rate during the next meeting in March (even an emergency cut cannot be ruled out). For the market, the IPO for the ETF tracking Diamond index as well as the listing of the Finlead ETF could be regarded as a key short term catalyst. This could deliver some short-lived optimism, and may allow investors to steel themselves as few positive catalysts are expected in the 1Q 2020 earnings preview, or in the upcoming AGM season.

Last week, the SBV continued to issue VND 23 tn of 91-day T-bills, at interest rates of 2.65%. The number of outstanding T-bills increased continuously in the past 4 weeks, nearly approaching VND 109 tn at present. The reverse repos channel also experienced its first transaction in 2020, but the value was very small, only a 21 bn VND 7-day term at an interest rate of 4%. In general, the SBV net withdrew VND 22.976 tn during the week, and net withdrew nearly VND 84 tn since the beginning of February. Interbank liquidity was still quite abundant, and interest rates were unchanged at 2.16% p.a. for the overnight term and 2.38% p.a. (-14 bps) for the 1-week term. The overnight rate differential of VND-USD was maintained at 0.5 p.a.

The SBV last week net withdrew VND 25 tn via issuing 91-day T-bills, at interest rates of 2.65%. The total number of outstanding T-bills came to VND 86 tn, while the reverse repos channel maintained a net-zero balance, and temporarily suspended foreign currency transactional operations. Ample VND supply from large commercial banks led interbank interest rates to continue to decline, closing the week at 2.16% p.a. (-39 bps) for the overnight term and 2.52% p.a. (-28 bps) for the 1-week term. The overnight rate differential of VND-USD was significantly tightened, from 0.9% p.a to 0.5% p.a. Term deposit interest rates were stable at 4.1-5.0% per annum for periods of less than 6 months. Meanwhile, the 6-12 month term range was at 5.5-7.4% per annum, and the 12-13 month tenure range was at 6.4-7.5% per annum. The maintenance of attractive deposit rates has helped customers' deposits at commercial banks grow in recent weeks.

Last week, the SBV net withdrew VND 36 tn via issuing 91-day T-bills, at interest rates of 2.65%. The SBV returned to this net withdraw position after more than 1 month of strong net injection. The total number of outstanding T-bills came to VND 61 tn. The large amount of VND returned to the banking system after the Lunar New Year holiday rendered an ample liquidity environment for commercial banks.