Rise in inter-bank interest rates seasonal

Monday, Mar 13, 2017 10:02

Since mid-February interest rates on dong loans on the inter-bank market have surged, somewhat surprising analysts since liquidity at most banks is pretty steady.

In the first week of March interbank rates for all tenors went up by 30-70 basis points from less than 4 per cent.

In fact, the average interest rate on the interbank market rose rather sharply, especially for overnight loans, by 0.66 per cent a year to 4.22 per cent.

The rates for one-week and two-week loans went up by 0.36 per cent and 0.28 per cent to 4.32 per cent and 4.44 per cent per year, while one-month rates hardened by 0.3 per cent to 4.74 per cent.

Some analysts said though liquidity in the banking sector is still high, it has reduced a bit.

They pointed to the fact that the State Bank of Viet Nam has been injecting money steadily in recent times through open market operations (OMO).

According to Bao Viet Securities Company, between February 20 and 24 the central bank pumped in VND15.715 trillion (US$698.4 million) through OMO. Meanwhile, bonds worth VND35.036 trillion have matured.

Also during this period the central bank issued seven- and 14-day treasury bonds worth VND7 and 9 trillion, while bonds worth VND49.9 trillion fell due.

This means a total VND33.9 trillion was pumped into the economy via treasury bills.

Rising interest rates on the inter-bank market has helped stabilise the dollar-dong exchange rate after a strong rise by the dollar in recent times.

Many analysts opined that the higher inter-bank rates would not last long, and expect them to fall sharply right in the end of the first quarter.

Others said the increasing rates are not a cause for concern since the inter-bank rates remain below the levels that require the central bank to intervene.

Besides, the banking sector’s loans-to-deposits ratio remains at 80-85 per cent, meaning liquidity is good.

In other words, the increase in the inter-bank rates is merely seasonal, they said.

In the early part of the month credit institutions often park their money with the SBV to meet compulsory reserve requirements, and in the latter part actively lend money.

That is why inter-bank interest rates often rise in the first and second weeks of a month and decrease later on.

Budget airlines benefit

According to a report by the Civil Aviation Administration of Viet Nam, last year airlines transported an estimated 52.2 million passengers, up 29 per cent from the previous year.

Of them, domestic passengers accounted for 28 million, an increase of 30 per cent.

The report also said patronage of low-cost carriers rose dramatically to around 15 million, or well more than half all domestic passengers.

The ratio of airline passengers to population rose from 0.5 per cent in 2012 to 0.8 per cent last year.

Analysts attributed the rise to the strong growth in budget carriers such as Vietjet and Jetstar Pacific.

The two no-frills carriers now fly on 50 domestic routes and to 17 airports around the country.

But they have also intensified investment in flying to international destinations.

Jetstar Pacific and Vietjet fly to places like Hongkong, Guangzhou, Taipei, Siem Reap, Seoul, Bangkok, Kuala Lumpur, Singapore.

According to the Viet Nam National Administration of Tourism, last year there were a record number of around 10 million international tourists, a year-on-year increase of 25 per cent.

The tourism industry also served 62 million domestic tourists and earned revenues of VND400 trillion ($17.8 billion).

The co-operation between budget airlines and tourism companies in setting up attractive tours at reasonable costs has contributed to growing tourism.

The industry has set a target of 11.5 million international and 66 million domestic tourists this year and revenues of VND460 trillion.

The tourism industry’s ambitious goals suggest that the Vietnamese aviation industry would continue to have the opportunity to grow.

The country has been identified as one of seven fastest growing airline markets in the world.

Steel industry

Recently the People’s Committee of the central province of Quang Ngai granted an investment certificate to a US$3 billion steel plant by the Hoa Phat Group.

It has an annual capacity of four million tonnes mainly of construction steel and rolled steel. It is expected to bring in around $2 billion in annual revenues and create 8,000 jobs.

The plant will be built in two stages and have a fixed capital requirement of VND40 trillion.

In the first phase it will produce one million tonnes of construction steel and one million tonnes of high-quality rolled steel a year. The second phase will see capacity expanded to two million tonnes of hot-rolled steel flat bars for machinery manufacturing.

Hoa Phat Group Joint Stock Company is a Viet Nam-based industrial conglomerate with three main business lines: construction steel, interior appliances, and construction.

The company primarily manufactures construction steel in the form of bars and rolls, coated and bare pipes, and others steelmaking materials.

It also distributes steel sheets.

On February 6 the Steel Corporation Pomina 2 also received the investment certificate from Ba Ria-Vung Tau Province to build a steel plant costing more than $38 million in the Phu My 1 Industrial Zone (IZ).

In last August 2016 the Ninh Thuan Province People’s Committee also gave an approval to Hoa Sen Group, one of Viet Nam’s leading steel producers and traders, to carry out surveys and study plans to build infrastructure at the Ca Na Industrial Park and a related steel manufacturing and seaport complex in Ninh Thuan District.

The fact that many domestic businesses are investing money suggests two things: Firstly, they have reached a stage where they can invest by themselves in steel projects that often require deep pockets, long business experience and market reputation.

A Ministry of Trade and Industry official said in the past domestic enterprises did not have the financial, technical or managerial capacity to build steel plants and so the Government had to solicit foreign investment.

The second aspect is the steel industry’s high growth potential and attractive profits it could bring investors.

In the last five years the domestic steel industry has been growing at an average annual rate of 15 per cent.

It manufactured around 15 million tonnes of steel products in 2015 and 17.5 million tonnes in 2016.

Meanwhile, Viet Nam is investing heavily in infrastructure development to drive economic growth and cope with the rapid urbanisation, and so will need massive volumes of steel.

It is estimated that every year the country will need around 15 million tonnes of iron, 18 million tonnes of steel billets and 22 million tonnes of finished steel products by 2020.

The steel industry does not operate at full capacity, and the country had to import 14 million tonnes of finished steel, mostly hot-rolled steel, the sixth highest by any country.

Market observers also said that the steel industry would continue to develop for another 20-30 years at least because it is hard to find other materials to replace steel.

High profits are also an important factor that attracts many companies to the industry.

In 2016 Hoa Phat Group’s revenues were nearly VND34 trillion ($1.51 billion) and after-tax profit, VND6.6 trillion ($293.3 million), higher year-on-year by 34 per cent and 89 per cent.

Other steel makers such as Vnsteel, Hoa Sen Group and some foreign companies also achieved good results.

The State-owned Vnsteel, for instance, reported a turnover of VND60.386 trillion and pre-tax profit of VND1.822 trillion. — VNS

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