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More surprises from the monetary market

More surprises from the monetary market

Wednesday 25, 12 2019
The banking system is creating one surprise after another in year-end activities.

It is exactly 1 week before the end of 2019 and 1 month until the Lunar New Year. If every year, near the Tet holiday, the demand for payment of people and businesses soared, causing the liquidity of the banking system to become strained, while the exchange rate was high, this year the situation is kind of “reversed”.

Specifically, the USD / VND exchange rate continued to decline and has decreased by a total of 0.5% compared to the end of 2018. The demand for USD was met, making the exchange rate "motionless" despite the USD in the global market and other foreign currencies fluctuating sharply. The rate reduction of 0.5% so far is beyond the forecast of observers and experts. Previously, most comments believed that the exchange rate would increase by about 2%.

Meanwhile, in banking activities, the demand for loans of banks sometimes increased but also quickly cooled down. For example, as of December 20 (the latest data of the SBV), overnight and 1-week VND interest rates - 2 terms accounted for the largest proportion with about 80% of total transactions - on the interbank rate were only respectively 2.02% and 2.52% after a continuous decline from more than 4% per year less than a week ago. Such low interbank interest rates are also surprising as it was previously forecasted that the interest rates would be around 4% / year in the peak month.

Not only reduced interest rates, the demand for loans of credit institutions also decreased. If during the week to February 13, on average, each session saw over 65,000 billion dong traded, only 60,000 billion dong was transferred to the last week (only for VND transaction).

In the open market, there were no new transactions in the whole week, and although it was at the peak period, the State Bank net withdrew VND 34.6 trillion via term buying.

According to observers, the liquidity of the whole system improved at this time mainly thanks to the abundant money supply from large commercial banks. However, the current interest rate level will be difficult to keep after about 2-3 weeks because the demand for money will be much higher because businesses pay year-end orders as well as pay salaries and bonuses for employees.

Deposit rates are stable

According to a report of Investment Analysis and Investment Advisory Center of SSI Securities, in the past week, deposit interest rates remained stable and did not record any significant adjustment from banks.

Specifically, the interest rates were still fluctuating between 4.1-5.0% / year with terms of less than 6 months, 5.5-7.5% / year with terms of 6 to less than 12 months and 6.4- 7.9% / year with terms of 12, 13 months.

Deposit rates are stable

Interest rates for terms of 6 months and above are still high so deposits of commercial banks have grown well in the last 4 months and increased the proportion of medium and long-term deposits in the deposit structure. According to data from the State Bank, the proportion of short-term capital for medium and long-term loans for the whole system has decreased from 28.4% at the end of 2018 to 27.3% at the end of September 2019. This rate is in the roadmap to reduce to no more than 30% in all banks on October 1, 2022 (according to Circular 22).

SSI analysts believe that, after the current peak period, interest rates may decline slightly but there will still be quite large differences among banking groups.

Learn more: Unexpected Exchange Rates At The End Of 2019

Financial News Banking

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