Banking liquidity on firm ground

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Asia Commercial Bank deputy general director Nguyen Thanh Toai said banking system liquidity was sound. “Low level dong credit has eased pressure on mobilising the dong for local banks and the interbank market has become quieter than usual,” said Toai.

According to the State Bank’s monthly report, in July, while dollar-denominated lending continued to rise, dong denominated credit was negative. “High dong lending rates combined with business difficulties continued to discourage enterprises from dong borrowing,” said the State Bank report.

As of July 20, total dong denominated credit growth was estimated to decline by 0.88 per cent month-on-month, pulling dong denominated credit growth to 2 per cent year-to-date.

By end of last week, on interbank market the overnight rate dropped to 10.38 per cent, per year, the lowest level since 2011. Meanwhile, four-week loans were offered at 13.62 per cent per year, six-month loans at 12 per cent, per year.

Nguyen Thi Kim Thanh, head of the central bank’s Banking Strategy Institute, said: “When a small scale bank like Western Bank rushes to buy government bonds in auctions, it must not face liquidity constraints. I think with high dong lending rate, the demand for loans will not surge.”

In May, Western Bank bought VND500 billion ($25 million) worth of government bonds.

Thanh said local corporations’ preference for dollar borrowing meant there was no need to hike dong reserve requirements.

In March, the then State Bank governor Nguyen Van Giau said in case of high credit growth, the State Bank might consider hiking the dong deposit reserve requirement.

As of July 20, dollar-denominated credit rose by 1.96 per cent month-on-month.

Enterprises have preferred to borrow dollars thanks to large gap between the dong-denominated lending and dollar-denominated lending rates. Currently, the gap is 12-13 per cent per year, according to the State Bank.

Newly appointed State Bank governor Nguyen Van Binh said that dong interest rates would decline in the near future to 17-19 per cent, per year.

As of July 20, total liquidity was estimated to increase 0.39 per cent month-on-month and 3.57 per cent up against end of 2010.