Rates on Vietnam’s Interbank Dong Loans Fall to 3-year Low

Tuan Minh

17:14 24/05/2016

BizLIVE - Interest rates on dong-denominated loans in Vietnam’s interbank market have dropped to a three-year low.

Rates on Vietnam’s Interbank Dong Loans Fall to 3-year Low

A view of the State Bank of Vietnam's headquarters. (Photo: Minh Tuan/BizLIVE)

Interest rates on dong-denominated loans in the Vietnamese interbank market have been on the decline since the end of April 2016, reaching a record low in the last three years, according to a report by Hanoi-based Maritime Bank’s Economic Research Center.
Rates of loans of terms shorter than one month last week went down by 0.9-1.8 percentage points from a week earlier, according to the report.
Meanwhile, the State Bank of Vietnam, the country’s banking authority, has net withdrawn cash through open market operations (OMO) consecutively in the past five weeks, bringing down the outstanding repos to zero from May 18.
The pattern of interest rates in Vietnam's interbank market in the past one year. Source: Maritime Bank’s Economic Research Center.  
“Developments in the interbank and OMO markets indicate that liquidity in the dong of the local banking system is quite profuse. This may be the outcome of the government’s target to lower lending rates, with an aim to support economic growth, leading to expectations for lower rates in the time to come,” said the report.
Similarly, winning rates in the government bond market plunged for the three- and five-year terms, causing the yield of five-year bonds to fall to the lowest since June 2015 and that of three-year bonds to a record low since December 2014.
Demand for G-bonds, particularly five-year notes, has surged in the context the government striving to reduce loan rates and interbank rates staying low, said the researchers.
In the year to May 20, the State Treasury of Vietnam sold some 133 trillion dong ($5.94 billion) worth of G-bonds through the Hanoi Stock Exchange (HNX), meeting 60% of the year’s plan.