VIETNAM Interbank overnight rate dips to 2.5pct, 5-year low

Interbank overnight rate dips to 2.5pct, 5-year low

VietFinanceNews.com - The interbank overnight interest rate has tumbled to 2.5 percent a year, the lowest rate since the figure was set for the first time 5 years ago.

The rate was first set on July 23, 2007, falling 0.5 percent from the previous rate of 3 percent, according to the State Bank of Vietnam (SBV).

The new rate, dropping from the previous rate of 3-3.6 percent, is the lowest since 2005, according to Reuters data.

On the interbank market, the interbank interest rate for a one-week term has also fallen to 3.5-4 percent a year, down sharply from 4-4.5 percent a year.

The interest rate for a 1-month term has also dropped from 6-7 percent to 6-6.5 percent a year.

On the open market operations (OMO), interest rates of treasury bills (T-bills) have also declined to 5.8-10.23 percent a year. However, many commercial banks continue to buy T-bills at a daily volume of some VND3 trillion.

The total amount of money commercial banks have spent on T-bills since March 15 is more than VND80 trillion.

This means banks are in a surplus of money, or the amount of serviceable capital of banks is plentiful, though the ceiling depositing rate has been lowered to 12 percent a year, according to local newswire VnEconomy.

This unusual circumstance has set the stage for interest rates to continue to decline in the near future.

Capital surplus

The SBV last month continued to withdraw capital via repo operations and the T-bills channel, said a recent report of the Foreign Exchange Department of Vietnam Commercial Joint Stock Bank for Industry and Trade (VietinBank).

Specifically, according to the central bank’s data and as calculated in the “Evolutions and trends of monetary market in April 2012″ report, the central bank pumped VND9.055 trillion for 7-day terms on OMO at an interest rate of 12-13 percent per year and withdrew VND10.962 trillion.

At the same time, the central bank issued T-bills to draw out VND51.431 trillion (for tenures of 28-days, 91-days and 182-days) at the yield of 6.2-12.5 percent per year
“Notably, by late April, the yield of T-bills continued to fall daily.

The constant fall of interbank interest rates has led to the decline of the T-bill yield. However, commercial banks with too much money is not a good sign” VietinBank’s report stated.

In total for April, the amount of money withdrawn by the central bank via repo operation and T-bills reached VND53.338 trillion.

Interbank transactions also showed that the capital sources of banks have recently been quite favorable, and the interest rates have fallen constantly and remained low.

In particular, in the last week of April, the central bank’s data showed that the interbank average interest rate in dong decreased in all terms.

Of which, the 1-week, 2-weeks, 1-month, 6-months and more than 12-months saw a fall of 1 percent-1.49 percent, while overnight term and 3-months were down 0.88 percent and 0.81 percent, and 3-weeks and 2-months slipped slightly.

The 12-month term saw a strong 5.22 percent decline over the previous week.

The overnight average interest rate thereby stood at only 6.69 percent per year and the average interest rate for 1 and 2-week terms even dropped to 5.79 percent per year and 5.93 percent per year.

The rates for longer terms were at 10 percent per year, and the highest was 12.04 percent per year for a 6-month term.

In early May, the interbank average interest rate in dong maintained its downward tendency and remained low.

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