Macro Report

Inactive week for open market operations. A week after the policy rate cut, open market operations were almost muted and liquidity in the banking system could be summed up as manageable. In total, there was a mere VND 216 bn of 28-day reverse repos issued, at a new winning rate at 5.5%. There was no new SBV treasury bill issuance activity for the week. 

The speed at which Silicon Valley Bank (SVB.US) [“SVB”] collapsed has customers questioning the fragility of the very model that banks operate under;

After a frantic weekend, UBS and the central bank agreed on a bailout for Credit Suisse to safeguard its banking system and prevent this crisis of confidence from spreading;

Credit Suisse has loan and syndication exposure to various Vietnamese companies. Credit Suisse likely will not be replaced easily, and funds flow into Vietnam could temporarily slow – further pressuring the real estate/corporate bond markets; and

In Asia, Mizuho Financial Group stands out with similar illiquid asset problems with over  10% of its CET1 exposed to Softbank Group (9984.JP) and affiliates.

SBV to cut policy and reverse repo winning rates. Last week, liquidity in the banking system could be summed up as manageable, while the real highlight of the week was the surprising move from the SBV to execute a rate cut, across several key policy rates. Open market operations were almost muted after the cut, with a small amount of reverse repos being utilized. In total, there was of VND 3.1 tn of reverse repos issued, mostly before the rate cut (amounting to VND 2.1 tn at 6%, 7 day tenure). In the later part of the week, only VND 986 bn was issued at a new winning rate at 5.5%, with a 28 day tenure. There was no new SBV treasury bill issuance activity for the week. 

Deposit rates declined for terms over 6 months. Last week, the SBV maintained course on liquidity withdrawal via open market operations, in order to keep interbank interest rates at a reasonable level and lower pressure on the exchange rate. Overall, the SBV net withdrew VND 40.3 tn ($1.7 bn), mostly from the aggressive pace of SBV treasury bill issuance.  Closing the week, the overnight interbank rate stayed at 6.2% (+unch WoW).

After Tet, the theme has been liquidity withdrawal to maintain a reasonable interbank interest rate spread.

The interbank rate climbed back to hover around the 5% region, but interbank lenders are still cautious over lending criteria to other banks.

The SBV announced its initial credit growth cap it assigned to commercial banks, with a lower level than last year’s.

Deposit rates cooled down, but market lending rates have not moved yet.

The VND followed regional peers with an depreciation pattern, as USD got stronger in February.

Liquidity risks and regional movement pushed yields in both primary and secondary government bond market rose in late Feb. Yield curve took on a steeper shape.

SBV to announce 2023 credit growth cap assigned to banks. Liquidity in the banking system has been somewhat under pressure at the end of the month, and the SBV actively utilized open market operations to support the banking industry. The SBV maintained course on liquidity withdrawal, in order to maintain interbank interest rates at a reasonable level and lower pressure on the exchange rate. Overall, the SBV net withdrew VND 1.4 tn ($59 mn) via open market operations.

During 2022, the Vietnamese corporate bond market experienced a severe liquidity crunch, triggered by regulatory crackdown. Due to the explosive growth of the corporate bond market during the 2018-2021 period, the government had previously signaled tighter regulations at the end of 2021. While reducing potential shenanigans, the regulation caused the local funding market to dry up. As a result, real estate-related corporate bonds have become distressed, especially with those maturing over the very near-term. Unlike our previous thoughts on the Vietnamese corporate bond market having an engineered a soft landing, our concern is now heightened. Given recent technical defaults of some issuers, the unresolved liquidity bottleneck, and the expected longer delay in the amendments to Decree 65, the government and relevant stakeholders might work harder to work out the benefit of the greater market and underlying economy. 

Liquidity withdrawal brought higher interbank rates. Overall, open market operation activities last week continued liquidity withdrawal, in order to raise interbank interest rates and lower pressure on the exchange rate. Overall, the SBV net withdrew VND 43.1 tn ($1.7 bn) via open market operations. In details, SBV treasury bill issuance resumed active throughout the week, with a total of VND 140 tn, in both 7-day and 91-day tenures. Bidding shifted to volume bids, and winning rates were fixed at 6% p.a. The move is intended to boost VND interbank rates, and maintain a reasonable spread with the USD rate ahead to lower pressure on the exchange rate. On the other hand, the latest turbulence in the corporate bond market also somewhat impacted bank liquidity in some cases, and reverse repos have been reactivated: VND 10.7 tn for the 7 day tenure at 6% p.a.

SBV to issue bills at longer term. Surplus liquidity was the theme last week, with low credit demand amid the stagnant property sector and economic slowdown. The SBV net withdrew VND 30.1 tn ($1.5 bn) via open market operations. In details, SBV treasury bill issuance resumed active throughout the week, with a total of VND 107 tn. A longer 91-day term duration has been added, that will be offered in concert with the normal 7-day tenure in order to maintain systemic liquidity in a more flexible manner. Winning rates went up towards the weekend, at 4.7% for the 7 day tenure, and 5.5% for the newly placed 91 day tenure bill. The move is intended to boost VND interbank rates, and maintain a reasonable spread with the USD rate ahead to lower pressure on the exchange rate. Such a move is one of proactive positioning, as the Fed is expected to hike rates by at least 25 bps next month. Closing the week, the overnight interbank rate was at 4.6% (-30 bps WoW). Pressure on the VND remained high, and lost another 0.65% last week.

Liquidity has been much improved in January, though the Tet holiday is a factor influencing this. The theme for the month was pumping liquidity out of the system, as cash demand rose.

The SBV announced a credit growth target for 2023 of 14-15%. However, this has not yet officially been allocated to commercial banks.

Deposit rates cooled down, due to abundant liquidity and the SBV stepping in.

The VND followed an appreciation pattern in Jan, and the SBV started to accumulate USD for FX reserves.

In the government bond primary market, bid-to-coverage jumped thanks to higher demand, and winning yields pulled back in January.

Government bond yields in secondary market cooled down, in line with regional movement.

SBV-bills issuance accelerated at low winning rates. Liquidity in the banking system was likely back to a state of abundance last week, and the SBV net withdrew VND 142.4 tn ($6 bn) out of the system via open market operations. In details, there were VND 85 tn ($3.6 bn) of 7-day SBV bills being issued at an accelerated volume towards the weekend, via volume-bid transactions. Winning rates were trending down, from 5.8% p.a. to 4.55% at the end of the week. The SBV has also utilized 7-day reverse repos of a mere volume VND 8.4 tn at 6% p.a. The overnight VND interbank rate dropped to 5.2%, which might create a bit pressure to the VND. As such, the VND depreciated slightly within the week, of 0.52%.

Liquidity cooling down towards weekend. Liquidity in the banking system remained tight in the first few days after Tet, but has started to cool down towards the weekend. During the week, the SBV had utilized 7-day reverse repos of VND 77.2 tn ($3.4 bn) at 6% p.a., but volume has decelerated. On Friday, the SBV even started to issue 7-day bills (of VND 15 tn) to sterilize FX purchases. In total, the SBV net injected VND 49.5 tn ($2 bn) via open market operations. The overnight VND interbank rate lingers at around 6% throughout the week, maintaining a safe spread vis a vis USD.

SBV started purchasing for FX reserves. Liquidity in the banking system was a bit tighter last week, as cash demand increased to prepare for the Tet holiday, especially going into the weekend. The overnight VND interbank rate ticked up to 6.1% (+100 bps) as of Friday, whereas longer terms (1 week to 1 month) ranged from 6.8% to 8.6% p.a.

Liquidity has been much improved in December, and the theme for the month was withdrawing liquidity out of the system. The SBV also actively used OMO activities with a longer-term duration in early December in order to provide liquidity support for the holiday season.

The overnight VND interbank rate was up and down during Dec, but ended the month with a relatively safe spread vis a vis the USD. Daily trading turnover increased, as market sentiment recovered.

The SBV announced a raise in terms of the cap on credit growth to 16% for 2022, but banks ended up only to disburse 14.5% YTD.

Deposit rates cooled down due to abundant liquidity and the call from SBV. Some banks offered a lending rate cut as part of that support. 

The VND followed an appreciation pattern in Dec, and recouped all previous losses in Q4.

In the government bond primary market, bid-to-coverage jumped thanks to higher demand, and winning yields having pulled back in Dec.

Government bond yields in secondary market cooled down, in line with regional movements.