Interest rates will most likely fall in the
coming time as banks are now awash with funds, ascertained by the crashing
inter-bank rate this week as well as the central bank’s move to drain capital
via open market operations.
The
inter-bank rate after hitting a four-year low last week continued the downtrend
this week. The overnight rate on the inter-bank market now averages at 2.5% a
year, while the rate for terms of two to three weeks hovers around 2.5-3.5%,
and the one-month term carries an average rate of 4-4.5% a year.
Compared
to the level last week, the inter-bank rate has now plunged by between 0.5 and
1.0 percentage point, meaning funds are now ample while the demand still runs
low.
The
central State Bank of Vietnam, meanwhile, continued to drain capital out of the
economy via open market operations (OMO), collecting a net volume of 9 billion
dong between last Monday and last Friday. From April 16 to May 18, the central
bank drained a net volume of 770 billion dong via OMO.
Observers
said the strong liquidity of Vietnam dong at banks now makes it possible for
the central bank to pull down the interest rate, both borrowing and lending.
Banks
are also holding long dollar positions, and the central bank has therefore
injected a big volume of Vietnam dong to buy the greenback.
Bao
Viet Securities Company observed that the foreign reserves have increased by
50% compared to the end-2011 level.
As the
central bank has pumped more Vietnam dong into the market to buy the U.S.
dollar, it is now issuing promissory notes to collect back the fund so as to
avoid the risk of inflation.
Last
week, the central bank successfully issued 3 trillion dong worth of promissory
notes having the terms of 28 days, 91 days and 182 days with the winning rates
of 4.5%, 7% and 8.5% respectively, much lower than rates in the preceding week.
Credit
institutions, struggling to find eligible borrowers, have now rushed to buy
bonds, making this market more bustling than ever. The total volume of
Government bonds and Government-backed bonds issued in the year to date has
amounted to 74.1 trillion dong, or more than US$3.5 billion. The State Treasury
alone has issued bonds with a total value reaching 70% of its target for the
whole 2012.
Experts
said that as the coupon for promissory notes and government bonds is on the
downtrend, and coupled with strong liquidity of the banking industry as well as
the inflation remaining low, the central bank may pull down the deposit
interest rate to 11% from the current 12% cap. That means a lower lending rate
in the near term.
In
fact, several banks have marked down the lending rate for certain clients.
Bank
for Investment and Development of Vietnam, for example, announced on Monday to
set aside 3 trillion dong to offer soft loans for clients. Those companies with
A rating will enjoy an annual lending rate of 14.5% at most, and no more than
15% a year for clients with a lower rating.
Saigon
Times
Business & Investment Opportunities
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