VietNamNet Bridge - The State Bank of Vietnam (SBV) has had to pump a large amount of dong through the open market operation (OMO) to ease a “dong fever” in the interbank market.

The dong fixed-term (overnight to one-week) lending interest rates in the interbank market for the first time in the last two years returned to the 5.7 percent per annum threshold last week.

The dong shortage incurred by commercial banks was the reason why SBV on April 21 had to pump VND17 trillion into the market through OMO, a very high amount, if noting that it only pumped VND3 trillion per day over the last year. 

The dong interbank market has been heating up on the banks’ dong demand and tightened liquidity. There are fewer lenders while the dong demand has been increasing, which has pushed interest rates up to 5.3-5.6 percent.

SBV pumped VND7 trillion through OMO last Monday, April 20. Meanwhile, it only pumped VND13 trillion in total a whole week before, from April 13 to April 17.

Two weeks before that week, SBV applied measures to tighten liquidity, which made it very difficult for credit institutions to borrow money on OMO. The move is believed to control the exchange rate and curb inflation.

Therefore, analysts said there is no sign that high inflation may return, adding that domestic demand and businesses’ competitiveness remain weak. A low inflation rate of 0.2 percent in April was reported for Hanoi.

The dong liquidity tightening has brought negative impacts. The dong liquidity became so weak that a bank was reported as proposing VAMC (the Vietnam Asset Management Company) to refinance banks, so that it could get dong from special bonds.

Tens of commercial banks have asked the State Bank to lift the ceiling on credit growth rates.

The southern banks are allowed to have a credit growth rate of 7-12 percent this year. However, some banks have gained the growth rate of six percent this year.

BIDV, the bank which is believed to be one of the three banks with abundant dong capital, has raised the one-month deposit from 4 percent to 5 percent, starting from April 21. This showed that banks are short of dong.

The move by BIDV could be the reason why the central bank decided to pump another VND5 trillion through OMO on April 21 afternoon, after it pumped VND12 trillion on the morning of the same day.

Meanwhile, some commercial banks still say they find it difficult to access dong capital source on OMO, even though they hold large amounts of government bonds.

TBKTSG