Vietnamese Banks Indifferent to Long-Term Capital

Specifically, the State Bank of Vietnam cited that the total amount of transactions on the interbank market during the week (April 20- 26) was approximately VND111,967 billion in exchange for US$95,290 billion. But the transactions in VND in this reporting period were mainly focused on the overnight and short-term trading (accounting for 38 percent of total sales in VND) and within two weeks (23 percent) and a week (18 percent). Similar to the transactions in USD, the term transactions with largest sales are focused on the periods of the overnight, two weeks and one week, which respectively account for 54 percent, 14 percent and 13 percent of total sales in USD.

 

The most notable news of the weekly report is the average exchange rate on the market has decreased in most of the period. According to the average interest rate of the periods from overnight to one month in the week has ranged from 1.75 to 3.0 percent per year, decreasing from 0.15 percent to 0.25 percent per year, compared with the previous week. The average exchange rate of USD on the market has decreased slightly in the period of less than one month and increased slightly for most of the period from one month or more. Accordingly, the average interest rate of the overnight to two weeks ranged from 0.25 percent to 0.65 percent per year, decreasing from 0.01 percent to 0.1 percent per year compared with the previous week.

 

Explaining the downward trend of the interest rates of the interbank market, a investment organisation explains that the reason for the trend of the interest rate volatility in the week comes from the instability of the deposit demands at the banks, which is low and irregular, while the big-name banks remain steady deposits. This is also the reason why the major banks have most of less than one month transactions rather than more than one month transactions.

 

In another story, it has been the second week in a row without the banks' bidding on the open market (OMO) although the State Bank of Vietnam has offered VND1,000 billion per session at an interest rate of 5.5 percent per year during the 7 day period and no money of OMO is in maturity in weeks. In contrast, the State Bank of Vietnam has released bills of VND21,550 billion for the maturity of 28 days and 91 days, down 42.1 percent from the previous week. The interest rates of both bills of two maturities after falling about 2.5 percent and 3.5 percent respectively have increased to 2.6 percent and up 3.9 percent at the weekend. With the amount of bills matured during the week reaching VND10,781 billion, total net transactions in the week corresponds to VND10,769 billion.

 

The opposite movements in the markets may stem primarily from the low credit growth rate while the liquidity of the banking system is maintained at a state of abundance. Some financial institutions share different opinions that the credit growth to the end of April is slowly improved and much lower than the 2.11 percent in the same period of 2013; besides, the liquidity is good so the banks have neither demand for capital nor sales of the bills.

 

The difference between the high growth of capital mobilization and the low credit growth seems to continue to impact very heavily on the open market as well as the demand for holding bills of the banks. In the second week of the April, the bank did not participate in the bidding on the open market while continuing to hold VND37,198 billion more bills issued by the State Bank of Vietnam. With the strong credit growth signal starting in April in the recent report of of the State Bank of Vietnam, the gloomy state of the market opening is likely to be significantly improved in the last two months of the second quarter of 2014.