Macro Report

Liquidity demand jumped in the last trading day of the year. Liquidity conditions in the first trading week of 2023 started out with an air of calm. Rates overall were relatively stable, with the overnight VND interbank rate hovering around 5% p.a for the whole week, whereas longer terms (1 week to 1 month) ranged from 5.8% to 8.2% p.a. Spread between the USD-VND was maintained at a reasonable level of around 50-80 bps. Together with positive FX inflows, this strengthened the VND close to the SBV ask-price level (VND 23,470 per USD). As such, we do not rule out the chance that banks could start to sell the USD to the SBV soon.

Liquidity demand jumped in the last trading day of the year. The last trading week of the year brought a bit of turbulence to the open market operations, but the overall theme is still to utilize bill issuance in order to withdraw money out of the system. Liquidity remained abundant throughout the first few days of the week, and the overnight VND interbank rate as of Thursday dropped to below 3% (2.8% to be precise) – which was the first time since last August. However, liquidity demand edged up on the last trading day, and the overnight rate climbed back to the 5% range (which in turn closed the gap with its USD counterpart). As of the 30^th of Dec, the overnight interbank rate posted at 5.0% (+150 bps WoW). For 2022, the average overnight rate recorded at +3.1% (2021’s: 0.8%), with much volatility seen in the second half of the year. This reflected the liquidity bottleneck in the system, and the tightened approach from the SBV. 

Reissued SBV treasury bills to boost VND interbank rates. Last week, the SBV has returned back towards significantly withdrawing money out of the system via OMO operations, with the aim to boost VND interbank rates and to deal with a temporary systemic liquidity surplus. The overnight VND interbank rate cooled down back to be around the 3-4% range, which narrowed the gap with its USD counterpart. Closing the week, interbank interest rates softened to 3.4% p.a for the overnight term (-120 bps WoW), the spread between USD-VND rates fell below parity, and the USDVND exchange rate in turn did face larger pressure. 

Interbank interest rates to soften. Last week in open market operations, the SBV continued to use 91-day reverse repo instruments to support medium-term liquidity in the system. Around VND 12 tn of 91-day contracts has been issued, at 6.4% p.a. together with VND 20.1 tn worth of regular 14-day reverse repos (at 6% p.a). In addition, there was another source of liquidity boost during the week, from the VND 40 tn of SBV treasury bills being expired. Closing the week, the SBV net injected VND 26.4 tn. Outstanding bills were cleared out, whereas outstanding reverse repos dropped to VND 69.7 tn. 

Liquidity has been somewhat cleared up at the end of November. The SBV actively used OMO activities with a longer-term duration in early December to help clear the short-term liquidity bottleneck.

The overnight VND interbank rate was stable throughout November, and maintained a relatively safe spread vis a vis USD. Daily trading turnover increased, thanks to recovery in market sentiment.

The SBV announced a raise in terms of the cap on credit issuance for banks to support the economy, with the cap on credit growth lifted by 1.5% - 2%.

Broad-based increases by 50-100 bps in deposit rate quotations at banks continue to be witnessed for both individuals and corporations. The lending rate increase continued on an incline pattern, though at a slower pace than before.

The VND reversed the previous trend, and flipped towards an appreciation pattern in late Nov-early Dec.

Trading volume improved significantly in the primary market. Winning yields ticked up, whereas the spread between the primary and secondary market narrowed.

Bond yields were flat on the back of weak daily average turnover.

Reverse repos have been issued at longer terms. Last week as seen in open market operations, the SBV clearly showed its intention to support medium-term liquidity in the system via extending tenures for reverse repo transactions. In addition to the issuance of regular 14-day reverse repos (of VND 28.6, to pair with VND 29.4 tn expired), around VND 9 tn of 91-day contracts has been pumped into the system. As we note previously that the funding gap in the system is quite tight, the action is in line with the latest credit growth extension and also preparing funding for the seasonal factor for the Tet season coming ahead. For the week, the SBV net injected VND 8.1 tn. Outstanding bills remained at VND 40 tn, whereas outstanding reverse repos jumped to VND 83.2 tn. 

SBV signals to grant credit growth extension. Last week, liquidity in the system returned to normal levels, and open market operations were not as active as before. During the week, the SBV regularly utilized reverse repos in timing with expiration volume. There were VND 45.66 tn of 14-day reverse repos at 6% p.a newly issued, out of VND 43.6 tn being expired. No SBV treasury bill issuance was recorded, and outstanding bills remained at VND 40 tn.  In total, the SBV has net injected VND 2.1 tn. VND overnight interbank rate was trending down, was at 5.4% (-60 bps) as of last Friday. On the other hand, longer rates (term over 2 weeks) jumped significantly (+40-50 bps) to reflect the likelihood of upcoming Fed rate hikes in mid-Dec. 

Overnight interbank rate moved higher. Last week, only reverse repo activities have been utilized. There were VND 29.4 tn of 14-day reverse repos newly issued, out of VND 23 tn that had gone expired. No SBV-bill issuance was recorded, and outstanding bills remained at VND 40 tn.  In total, the SBV has net injected VND 6.38 tn. The VND overnight interbank rate moved higher, at 5.9% (+50 bps) as of last Friday.

SBV Bill issuance shifted to rate bids. This week, the SBV has returned to significantly withdraw money out of the system via OMO operations, with the aim to boost VND interbank rates. A large volume of reverse repos came to expire this week (VND 58 tn), but the SBV only issued VND 43.6 tn to pair with, at 6% with a term duration of 14 days. More interestingly, SBV treasury bill issuance has been reactivated after being idle for almost 2 weeks, with a total of VND 40 tn. Term duration has been lengthened to 28 days from 7 days as seen previously, in order to maintain systemic liquidity in a more flexible manner. Further, bidding mechanism shifted back to the rate bids and winning rate dropped from 6% to 4.5% pa, as of Friday. In total, the SBV has net withdrew VND 54.6 tn out of the system. 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, as the Fed is expected to hike rates by at least 50 bps in mid-December. As a result, closing the week, overnight interbank rate moved higher, to 5.5% (+80 bps WoW). 

Overnight interbank rate dropped significantly. Liquidity in the banking system improved slightly last week. Only VND 28 tn (-60.4% WoW) of 14-day reverse repos were newly issued, and the bidding mechanism remained at volume bids at a fixed rate of 6% p.a. On the other hand, there were no SBV treasury bills being issued throughout the week, and there was no outstanding SBV treasury bills left. In total, the SBV has net withdrew VND 25.6 tn over the last the week, mainly due to large number of reverse repos coming due for expiration (VND 48.7 tn). VND overnight interbank rates during the week dropped to under 5%, and was at 4.4% (-160 bps) as of last Friday. Yet it might create a bit pressure for the exchange rate, as the spread between USD and VND interbank rates narrowed.

Liquidity continued to be a focal point in October. The SBV actively used OMO activities to help clear short-term congestion after the SCB was converted into special control status.

The overnight VND interbank rate moved wildly within October. Daily trading turnover dropped due to low supply and interbank lending reluctancy between banks.

The SBV announced another policy rate hike, mainly to deal with the weakness of the local currency.

Broad-based increases by 30-100 bps in deposit rate quotations at banks after the policy rate hike, for both individuals and corporations. The lending rate increase continued an incline pattern, though at a slower pace.

The VND notably underwent depreciation in October. The SBV revised its ask-price three times in October, and widened the trading band for the first time since 2015. FX intervention from FX reserves were limited.

Disbursed FDI has shown to be robust, implying a firm degree of forward-facing confidence for Vietnam’s continued role as a prime manufacturing hub, while helping to shore up the VND. 

Trading volume was improved significantly in the primary market. Winning yields ticked up, whereas the spread between the primary and secondary market narrowed.

Bond yields in the secondary market continued an uptrend trajectory in October. Daily average turnover dropped, due to low supply and tight liquidity conditions.

Liquidity returned to stay stretch. There was more stress observed in terms of liquidity in the banking system this week, and reverse repos were utilized with a longer term duration. Around VND 58.1 tn of 14-day reverse repos were issued, and the bidding mechanism remained at volume bids at a fixed rate of 6%. There were also VND 20 tn of 7-day SBV-bills issued earlier on during the week. In total, the SBV has net injected VND 74 tn for the week. VND overnight interbank rates during the week stayed at a range above 6%, having increased to 6.2% p.a by the close of the week (+140 bps). The spread between USD and VND interbank rates remained stable, at over 200 bps.

SBV hiked policy rates. Liquidity in the banking system has improved during the week, and open market operations were utilized with the flexible combination of SBV bill and reverse repos. Around VND 73.1 tn (-42% WoW) of 7-day SBV-bills were issued, and the bidding mechanism remained at volume bids at a fixed rate of 6% (up from 5% last week), which mainly aimed to boost interbank rates. There were also about VND 37 tn of 7-day reverse repos newly issued at 6%.   For the week, the SBV has net injected VND 46.6 tn worth, due to a large amount of SBV-bill expirations (VND 126.2 tn).

SBV aggressively withdrew liquidity out of the system. A week after the government had taken custody of SCB into special control, liquidity in the banking system quickly calmed. Since then, the SBV has aggressively withdrawn liquidity out of the system via SBV-bill issuance. Around VND 126.1 tn of 7-day SBV-bills were issued. Interestingly, the bidding mechanism in particular shifted to volume bids instead of the rate auction method as was done previously, and the SBV has fixed a winning rate at 5%, which mainly aimed to raise interbank rates. However, interbank rates still stayed at a low level of around 4% p.a. as of last Friday.