Macro Report

Open market operations were muted for most of the month, characteristic of low credit demand and abundant liquidity already being quite sufficient for current credit needs.

The interbank rate continued to be low, hovering around a low range of 0.2%.

Credit demand has not yet picked up in August, though it showed signs of improvement MoM.

Deposit rates declined another 50 bps in August, while several banks offered attractive lending rates for consumer refinancing loans.

The VND experienced some volatility in August, as the currency faced a rising dollar and sustained high interest rates in many other countries.

Yields in the primary government bond market were almost flat; STV lowered offering volume.

Yields in the secondary market rose for active tenures; a significant spread exists between Vietnamese government bond yields and UST yields.

Credit growth stayed at the low range. In review, it has been another inactive week in open market operations, and neither reverse repos nor SBV treasury bills issuance were utilized, though the SBV as it regularly does had offered VND 12 tn of 7-day reverse repos to the system anyway. As a result, overnight interbank interest rates remained at the lower range of 0.2%.

Minimal liquidity pressure going into the holiday weekend. There has been another inactive week in open market operations, and neither reverse repos nor SBV treasury bills issuance were utilized, though the SBV regularly offered VND 15 tn of 7-day reverse repos to the bond market. Liquidity in the banking system has been abundant, though cash demand normally ticks up upon to the long holiday. As a result, overnight interbank interest rates remained at the lower range of 0.2%.

Deposit rates cooled down in both SoCBs and JSCBs. There has been another inactive week in open market operations, and neither reverse repos nor SBV treasury bills issuance was utilized, though the SBV regularly offered VND 15 tn of 7-day reverse repos. As a result, overnight interbank interest rates remained at the lower range of 0.2%, and the VND-USD spread stayed at around -500 bps.

Exchange rate under pressure last week. We again saw another inactive week in open market operations, as liquidity in the banking system remained on tap, and credit demand has not yet seen pickup yet. According to the government meeting minutes, as of August 9^th, credit growth posted at 4.3% YTD, which is not much different from figure at the end of July. As a result, overnight interbank interest rates remained at the lower range of 0.2% and the VND-USD spread stayed at around -500 bps.

Deposit rates at JSCBs further dropped. We have seen another inactive week in open market operations, as liquidity in the banking system remained on tap, and credit demand has not yet seen pickup yet. As a result, overnight interbank interest rates remained at the lower range of 0.2% for the whole week, and closed the week unch. at 0.2%. Average trading value was resilient at around VND 186 tn – almost double from the 2020-2021 average level, a reflection that banks have been actively used this channel as a source of short-term funding.

Open market operations were muted for most of the month, thanks to abundant liquidity and low credit demand

The interbank rate hovered around the low range of 0.2% - 0.5%.

Credit demand has not yet picked up in July, and boosting credit demand is on the focus for SBV

The VND moved in a different path vs. regional peers.

Both yields in the primary and secondary government bond market declined in July, reflecting the ample liquidity in the system

The STV announced the 3Q23 issuance plan with a higher offering volume vs. last year’s

The VBSP re-participated the primary market at a modest issuance volume of VND 4.5 tn.

Low credit growth for July. It has yet again been another week of muted open market operations, as liquidity in the banking system remained ample as-is. Weak credit demand was the key reason behind the abundant liquidity, and so far we have not yet seen pickup yet. As a result, overnight interbank interest rates remained hovering at the lower range of 0.2% for the whole week, and closed the week unch. at 0.2%. The VND-USD overnight rate spread maintained a large negative figure of -500 bps.

Muted open market operations. It has yet again been another week of muted open market operations, as liquidity in the banking system remained ample as-is. Overnight interbank interest rates were mostly rangebound within 0.2-0.3% for the week, and closed the week unch. at 0.25%. As the Fed rose the Fed Funds Rate by another 25 bps last week, the VND-USD spread widened to -500 bps.

Interbank interest rates remained low. Liquidity in the banking system remained ample last week, and the SBV again did not utilize any new open market operations for the week. Overnight interbank interest rates hovered around 0.2-0.5% rangebound for the week, and closed the week at 0.25% (unch). Accordingly, the VND-USD spread remained beyond -450 bps. This week, the July FOMC meeting will convene and if things go as the market is betting on, there will be another 25 bps hike coming up. That means the VND-USD spread would then widen to nearly 500 bps, and might create carry trade opportunities with it.

As the deepening of the corporate bond market has been on the agenda of the Government for years, we believe that more structural solutions will be prioritized over the long term. For the first strep, the introduction of listed private corporate bond exchange (on July 19, 2023) is a good start. It would appear to be a good time for change, given the appetite for capital markets reform, including the transparency, evolving toward institutional investors, strengthening regulation and governance of the corporate bond market, in addition to improving enforcement and insolvency framework.1H23 corporate bond market recap: Decree 08 provides a proper legal framework to defer bond payments and decisive measures from the SBV and the government to restructure the real estate sector and to promote a sound corporate bond market.

Interbank interest rates remain low. Liquidity in the banking system remained ample last week, and the SBV again did not utilize any new open market operations for the week. Overnight interbank interest rates dropped further to around 0.2% at the end of the week, thereby widening the VND-USD spread to over -450 bps.

Open market operations were muted for most of the month, thanks to abundant liquidity and low credit demand

The interbank rate dropped to the lowest since March 2021

The SBV cut policy rates for the fourth time in 2023, while deposit/lending rates trended lower to reflect the easing cycle

Monetary policy might reach the saturation point, with eyes on how well credit demand could pick up

The VND ticked up in late June but on year-to-date term was still against most regional peers.

Tailrisk to the VND increased, as monetary policy diverged between Vietnam and developed countries

Both the primary and secondary government bond market declined in June, in response to policy rate cut. Vietnam’s bond yields are now similar to China’s or Thailand’s

The STV was reluctant to issue more government bonds in the primary market but offered more variety of tenures.

Interbank interest rates remain low though exchange rate pressure is rising. Liquidity in the banking system remained ample last week, and the SBV again did not utilize any new open market operations for the week. Overnight interbank interest rates remained below the 1% range for the week, closing at 0.63% p.a., +20 bps). The VND-USD spread has widened since early June, and now was at around -400 bps, which creates carry trade opportunities. We see pressure on the exchange rate is rising, not to mention that the seasonal factor from FDI profit repatriation normally starts from July. In fact, the VND lost about 0.6% within a week on Wednesday, and pared back on Friday when the SBV signaled to sell forward FX contracts.

Low credit demand drove interbank interest rates to the lowest since 2021. Liquidity in the banking system remained ample last week, and the SBV did not utilize any new open market operations. All outstanding reverse repos have expired last week (VND 294 bn), and currently both outstanding SBV T-bills and RRPs reverted to null.  Unlike our expectations, overnight interbank interest rates remained low for most of the week, as credit demand was stagnant even considering the usual cycle wrapping up the quarter. It dropped to the lowest since March 2021, to 0.39% p.a on Thursday, and then ticked up slightly to 0.7% p.a. (-38 bps WoW) at the end of the week. Overall, the interbank rate came back to the average 2021 range, a far cry from reaching the peak of around 7-8% in November 2022, reflecting that liquidity has been much improved.