Oil to get liquidity machine moving

The government’s Resolution No.03 dated February 8 requests State Bank of Vietnam (SBV) to make clear plans to address liquidity woes in 2012’s first quarter and help reduce interest rates.

Previously, on February 6, SBV issued Document No.539/NHNN-DBTKTT asking credit institutions and foreign banks within two days to report lending, depositing, borrowing relationships with other banks, plus investments in bonds and valuable papers issued by other credit institutions.

The transparency requirement will help examine interbank operations which became chaotic in last year’s final months.

However, there is no silver bullet for the liquidity problem.

According to Viet Dragon Securities Company’s new report “Down but not out: Will Vietnam’s economy bounce back?” released last week, the liquidity problem had been an elephant in the room for many years. Poor liquidity management in several commercial banks were identified and alerted long before 2008 when an abnormal steep surge in deposit rates and intense competition for deposits occurred.

“Several commercial banks maintain large maturity gaps, causing serious asset-liability mismatches. Most of the deposits have maturities of less than one year, while many loans are for very long-term large projects,” said Ho Quoc Tuan, chief economist with Viet Dragon Securities Company.

Previously, SBV Governor Nguyen Van Binh admitted that the underlying cause for liquidity problems came from depositors preferring to keep money for short terms from one to three months.

But, some commercial banks were using up to 100  per cent of short-term capital to finance long-term projects, while the cap regulated by the central bank is 30 per cent.

According to Saigon Securities Inc.’s report “2012 macro outlook- Flying dragon or dragonfly” issued early January, with the credit growth cap of below 20 per cent for 2011, banks tended to push lending activities early during the year to increase interest income. However, they had difficulties in attracting deposits, especially state-owned commercial banks who strictly complied with the 14 per cent cap on deposit rates.

As a result, the report stated, the loan to deposit ratio of banks had increased and negatively affected their liquidity and SBV tutorship of some small banks increased.  

Until now, SBV still continued to support bank liquidity by pumping capital though open market operations (OMO) as well as speed up banking restructuring. To help banks cope with depositors’ withdrawals for Tet consumption, from January 9-21 SBV pumped around VND160,000 billion ($7.68 billion) though OMO.