Vietnamese Tiếng Việt | Monday, October 15, 2018 | Advertise with Us
Text Size

Banks’ liquidity unexpectedly getting tight

(0 votes, average 0 out of 5)

 Since the beginning of August, the interbank interest rates have stayed at high levels of 4.5-4.6 percent per annum for overnight, 1-week, 2-week and 1-month term loans, the highest rates since late 2016. 

vietnam economy, business news, vn news, vietnamnet bridge, english news, Vietnam news, news Vietnam, vietnamnet news, vn news, Vietnam net news, Vietnam latest news, Vietnam breaking news, liquidity, prime interest rate, FED

Banks' liquidity is getting tight


 Interest rate rising sharply

The General Statistics Office’s (GSO) report shows that the total money supply (M2) in the first six months of 2018 increased more rapidly than credit growth.

By June 20, 2018, the credit growth rate of the entire banking system had reached 6.35 percent compared with the end of 2017, or VND413 trillion. 

Meanwhile, the M2 had reached 7.96 percent, or VND652 trillion. The figures showed that banks had abundant cash.

However, a lot of ‘strange’ things have happened recently in tier-2 market, where transactions among commercial banks, and between commercial banks and the State Bank occur.

Over the last six weeks, the interbank interest rate has been fluctuating. Since the beginning of August, the interbank interest rate has been hovering around the high level of 4.5 percent per annum.

The fact that the interbank interest rate has remained high over many consecutive weeks reflects the tight liquidity of the banking system, according to Bao Viet Securities (BVSC).

BVSC’s research team affirmed that tension in the interbank market has begun influencing the tier-1 market. The deposit interest rates applied by commercial banks are rising, especially for 6-12 month term deposits. Ban Viet, SHB, Techcombank and Vietbank, for example, have raised interest rates by 0.1-0.3 percent.

Money being withdrawn

What has caused the tight liquidity of the banking system in the last two months, which was quite contrary to the abundance in the first six months of the year?

The State Bank does not update data about the credit and M2 growth rates monthly. However, BVSC noted that the M2 growth has slowed down in the last two months.

The M2 increased sharply in the first six months of the year as a result of the State Bank’s purchase of foreign currencies.

The forex reserves by early May 2018 had reached $63 billion, increasing by $11 billion over the end of 2017. As such, in the first five months of the year, the central bank pumped a large amount of money, estimated at VND250 trillion, to buy $11 billion.

Also according to BVSC, from July 30 to August 28, 2018, the State Bank withdrew VND23.687 trillion through OMO and bonds. 

Meanwhile, the dong has not been pumped into circulation to buy foreign currencies since the beginning of Q3. The State Bank even had to sell $2 billion to ease the dong/dollar exchange rate tense, which means that VND46 trillion was withdrawn from circulation.

Analysts commented that SBV’s policy has two purposes – curbing inflation and easing pressure on the exchange rate.


Source: VNN

Maybe You Also Interesting :

» Central bank net withdraws over $581m amid improved liquidity

Liquidity in the banking system has improved in the past week, pushing the State Bank of Việt Nam to make a net withdrawal of over VNĐ13.6 trillion...

» Fed rate hike won’t have much impact on Việt Nam

The US Federal Reserve (Fed)’s third interest rate hike this week would not affect Việt Nam’s economy significantly as the move was foreseeable,...

» Federal Reserve raises interest rates again

The US Federal Reserve has raised interest rates again. Officials increased the target for the bank's benchmark rate by 0.25%, to a range of 2%-2.25%. A...