SBV pumps in capital to control interest rate heat

                                                                  Photo: Duc Anh

Treasury bill issuance suspended and money pumped into market via OMO to address interest rate rises.

The State Bank of Vietnam (SBV) has ceased issuing treasury bills and begun pumping capital totaling VND22 trillion ($966.46 million) into the market via open market operations (OMO) in the last three weeks.

The last two weeks have seen deposit rates rise by 0.1 - 0.4 per cent, depending on the term, at Sacombank, VPBank, Eximbank and Techcombank among others.

Interest rates on two-month deposits at Sacombank have risen from 4.9 per cent to 5 per cent per annum and six to ten-month terms from 5.9 per cent to 6 per cent. Fifteen-month terms and above now attract an interest rate of 7 per cent per annum.

VPBank has adjusted its deposit rates from 4.9 per cent to 5.2 per cent per annum on one-month deposits and from 6.5 per cent to 6.9 per cent on 12- and 13-month deposits. Eximbank, Techcombank and TPBank have also increased their interest rates by 0.1 to 0.3 per cent per annum on certain terms.

In November the market saw interest rates increase slightly at a few banks after widespread increases by small banks in September. No moves have as yet been seen at four semi-private banks - Vietcombank, Vietinbank, BIDV and Agribank.

An acceleration in credit has resulted in the capital balance moving toward the demand side as the year ends, when there is an increase in enterprise payments and spending among consumers, according to the Bao Viet Securities Company (BVSC).

The last three weeks has also witnessed an increase in interest rates within the inter-bank market on overnight, one-week and two-week terms, with the highest recorded at 5.5 per cent per annum.

In a move to cool the heat from high interest rates the central bank has ceased issuing treasury bills and begun pumping capital into the market via OMO. The lending rate via OMO is currently set at 5 per cent, equal to the rate on the inter-bank market.

BVSC believes that deposit rates will continue being high until Tet, which is at the end of January and early of February. Financial sources at low interest rates from the banking sector will not be as plentiful as previously, and this may be a negative for the stock market at the moment.

Financial sources will soon return to the system after Tet, however, helping to reduce any heat from interest rates on the inter-bank market. Rates are forecast to return to stable by the end of the first quarter of 2017.

While the central bank has targeted credit growth of between 18 and 20 per cent for this year, banks expect lending to grow 21.82 per cent as improved business conditions have spurred credit demand.

Vietnamese lenders have said Vietnam dong deposits may grow 16.85 per cent this year with foreign currency deposits to decline to 6.9 per cent, following sharp cuts in interest rates, a recent SBV survey found.

VND95 trillion ($4.17 billion) in bad debts are estimated to have been settled this year, according to figures from the National Financial Supervisory Commission (NFSC).

Debt collections and the sale of collateral accounted for 52.6 per cent of debts settled, bad debt provisions 26. 6 per cent, and sales to the Vietnam Asset Management Company (VAMC) 21 per cent.

by Duy Anh / VET