Macro Report

Interbank rate surged on the back of liquidity shortage. Liquidity in the banking system has been under pressure since last week, and open market operations are back into play. There was a total of VND 6.03 tn ($243 mn) of 7-day reverse repos utilized for 2 working days, and only one participant joined the bid for each auction. Afterwards, the OMO market started to normalize back  its way to returning back to a state of relative placidity.

The SBV slightly issued reverse repos on the last day of Jan to support liquidity.

Banks actively utilized the interbank channel for liquidity. Overnight interbank rates hovered in a low range, then picked up just prior to Tet.

Deposit rates continue to decrease for shorter terms and the gap between SoCBs and JSCBs (both big, medium and small) has narrowed significantly.

The gap between the official and unofficial USD/VND widened; and the SBV announced stabilization of domestic gold prices.

The STV issued annual and quarterly plans, favoring the 5Y tenure.

Government bond yields declined for short-term tenures in secondary market.

Interbank rate surged due to higher liquidity demand towards Tet. Last week in open market operations, there was a small volume of 7-day reverse repos being utilized (VND 2.28 bn in total) at 4%. It was indeed a small volume for a pre-Tet season, reflecting that liquidity in the system has still been well managed and demands via OMO channel are weak. In fact, most commercial banks actively use the interbank channel for temporary liquidity funding.

Closely monitoring the USD/VND. Last week, we saw an inactive week in the open market operations as neither reverse repo nor SBV treasury bill issuance was utilized. The overnight interbank interest rate stayed at around 0.12% (-3 bps WoW) and the VND-USD gap kept at approx. -500 bps. Trading volume improved slightly to VND 245.4 tn per day (+7% WoW). We might expect there will be more turbulence in the interbank market for the next two weeks, responding to higher cash demand towards the Tet holiday.

Trading volume in the interbank market slid. Last week, neither reverse repo nor SBV treasury bill issuance was utilized. The SBV as it has regularly done has continued to offer VND 1 tn of 7-day reverse repos per day. The overnight interbank interest rate stayed at around 0.15% (unch) and the VND-USD gap kept at approx. -500 bps. Trading volume cooled down to VND 231 tn per day (-12.8% WoW), reflecting that liquidity in the system has been well-managed.

Overnight interbank interest rate stayed at low range. Last week, open market operations were muted. There was a relatively non-material amount of 7-day reverse repos that had expired (VND 1.04 bn), while no SBV-bills or reverse repo contracts were utilized during the week. The overnight interbank interest rate remained at around 0.15% (unch WoW) as of Friday. Trading volume in the interbank market remains elevated, at around VND 265 tn per day.

The SBV slightly issued reverse repos on the last day of the year to support liquidity.

Overnight interbank rate hovered around the low range, then picked up last week of Dec.

Deposit rates continue to decrease for shorter terms.

Credit growth ticked up in Dec, but more likely due to cyclical factor; Gap between deposit balance and credit outstanding bridged.

The gap between official and unofficial USD/VND widened; SBV announced stabilization of domestic gold price.

Government bond yields retraced in both primary and secondary market.

Trading volume in secondary market jumped significantly in Dec.

Overnight interbank interest rate cooled down. Last week, open market operations returned to a cyclical state of inactivity. There was a modest amount of 7-day reverse repos utilized (VND 1.04 bn), while the VND 4.5 tn has been expired. The overnight interbank interest rate quickly cooled down to 0.2% (-340 bps WoW) as of Friday. Trading volume in the interbank market remains elevated, at around VND 280 tn per day. We believe that there might be more volatility in this channel, particularly as liquidity comes under pressure as the Tet holiday approaches.

Overnight interbank interest rate jumped in the last trading day. The last trading week of the year brought a bit of year-end turbulence to interbank interest rates. In terms of open market operations, neither reverse repo nor SBV treasury bill issuance was utilized. The SBV has predictably continued to offer VND 1 tn of 7-day reverse repos per day. On the other hand, the overnight interbank interest rate was cyclically up and closed at 3.6% (+335 bps Wow). It is understandable as it’s customary window dressing as corporations are closing out their books for the year. Naturally, liquidity in the banking system around year-end is normally in shortage here, and rates in the interbank market are more volatile. For 2023, the average O/N rate recorded at +2.3% (2022: 3.1%), with much volatility seen in the first half of the year to reflect the liquidity bottleneck in the system, whereas the second half of the year was characteristic of abundant liquidity care of less credit demand and a more dovish monetary policy stance towards year-end.  

Vietnam is moving towards implementing an Income Inclusion Rule (IIR) and Qualifying Domestic-Minimum Top-Up Tax (QDMTT) under the scope of OECD’s Pillar Two Model Rules as in November 2023, the National Assembly approved the Resolution to introduce QDMTT and IIRR, effective from 1 January 2024. This Resolution will have significant impact on the tax obligations of in-scope multi-national companies (MNCs), especially the one who enjoy corporate income tax incentives in Vietnam. In the latest move, the Ministry of Planning and Investment proposed a new incentive policy specifically towards high-tech sector to maintain Vietnam’s investment competitiveness. We anticipate that it will be a quick approval for the ISF proposal, probably before the extraordinary National Assembly meeting in mid-Jan next year to make it effectively from 2024 onwards. Further, we expect that this implementation of GMT rules will require Vietnam to re-assess its long-term incentive investment policies and a comprehensive enhancement in tax infrastructure.

Credit growth ticked up slightly. Last week in terms of open market operations, neither reverse repo nor SBV treasury bill issuance was utilized. The SBV has continued to offer VND 1 tn of 7-day reverse repos per day. The overnight interbank interest rate was marginally up by 3 bps, at 0.18% (WoW) for the week. Trading volume in the interbank market remains elevated at around VND 240 tn per day (~$10 bn USD). All in all, not much different from the week before.

Overnight interbank interest rate stayed at low levels. For the past week regarding open market operations, neither reverse repo nor SBV treasury bill issuance was utilized. The SBV has continued to offer VND 1 tn of 7-day reverse repos per day, and there was no more SBV-bills that had expired this past week. The overnight interbank interest rate stayed unchanged, at around 0.15% (unch) for the week and the VND-USD gap kept at approx. -500 bps. Trading volume in the interbank market remains elevated at around VND 240 tn per day (~$10 bn USD), not much different from the week before. It implies that commercial banks are proactively using this channel for short-term funding purposes.

The SBV stopped issuing bills, as forex risk subsided.

Overnight interbank rate was back to the lowest range in Nov; VND-USD interest rate gap widened.

Deposit rates continue to decrease; lending rates for new loans back to 2021 levels.

The SBV permitted additional credit growth for banks in need

The gap between official and unofficial USD/VND widened

Government bond yields retraced in both the primary and secondary market.

Overnight interbank interest rate stayed at low levels. In the sphere of open market operations, neither reverse repo nor SBV treasury bill issuance was utilized. The SBV as it has recently done has continued to offer VND 1 tn of 7-day reverse repos per day, and VND 15 tn worth of SBV-issued bills expired at the same time. All bills expired last week. The overnight interbank interest rate stayed at around 0.15% (unch) and the VND-USD gap kept at approx. -500 bps.