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Banking liquidity is abundant thanks to the large money supply. Photo: T.Linh

Abundant liquidity

Contrary to the movements of bank liquidity in the last days of August, the liquidity of the system showed signs of redundancy from the beginning of September 2019. This movement has caused the State Bank (SBV) to not perform treasury bill issuance but also re-issue treasury bills to withdraw money.

Along with these developments, interbank interest rates have continuously decreased.

The SBV is now announcing the overnight interbank interest rate at 1.74% – down 0.41 points. A 1 week term is 2.49% – up slightly by 0.09 points, while a 2 week term is 2.56% – a decrease of 0.04% compared to the previous week. However, compared with the interbank interest rate in the last week of August, it sees a very strong decrease, because at that time, the interbank interest rate fluctuated over 4%. For example, the overnight interest rate reached 4.8%, so the interbank interest rate this time has decreased to 3.06 points.

According to experts, the interbank interest rate remained at a low level thanks to the decision of lowering the State Bank's interest rates in mid-September. This has led to a situation contrary to the common practice in the last months of the year since this time often sees signs of liquidity stress due to increased demand for seasonal capital last year.

Besides, abundant liquidity is also reflected in the deposit interest rates of banks, although at a high level but stable or slightly decreasing in comparison with the beginning of September. For example, BIDV has decreased to 0.2% for 1-month and 2-month terms.

Many support factors

According to the General Statistics Office, as of September 20, the total mobilized capital of credit organizations increased by 8.68%, higher than the credit growth of 8.4%. This is considered to be an effective support for the abundance of bank liquidity. This is expected to continue when the SBV continues to curb credit growth. Slower credit growth is considered one of the factors helping capital in banks return to a surplus.

In fact, domestic credit growth is tending to be slower due to the impact of domestic and foreign issues. Many businesses face difficulties and export slows, so there is no demand for loans to expand production. Real estate credit and many risk areas are tightened by the SBV. Meanwhile, the capital mobilization is increasing day by day, when the interest rate is still quite high, some banks issue valuable papers with high interest rates to increase mobilization of medium and long-term capital that also creates favorable conditions for deposit growth.

Along with the above problem, the money supply is stronger in the context of a stable monetary market. The SBV's report on banking operations in the third quarter of 2019 said that the SBV has flexibly and synchronously implemented monetary policy instruments to stabilize the monetary and foreign currency markets and control inflation according to the set target. Therefore, as of September 24, the total means of payment (M2) increased by 8.58% compared to the end of 2018. The liquidity of the credit institution system is guaranteed. In particular, the relatively stable exchange rate and flexible movements in accordance with changes of market conditions have also helped ensure liquidity, smooth transactions, and legitimate foreign currency needs are met fully and promptly.

As a result, the SBV increased buying foreign currencies, helping the money supply increase sharply. Moreover, the flow of foreign direct investment continued to increase sharply with disbursement of capital up to US$14.2 billion, up 7.3% over the same period last year; as well as indirect investment flows in the stock market along with a series of M&A deals, equitization and divestments, helping abundant money supply, liquidity can continue to be supported in the near future.

However, experts still warned that liquidity could reverse if year-end credit increases sharply, because this is the peak business season for enterprises. Moreover, the situation of high mobilizing interest rates is also something to be noted.