Tran Thi Thanh Thao Research Analyst T: MONEY MARKET INTEREST RATES

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1 Tran Thi Thanh Thao Research Analyst T: Thao.TranThiThanh@mbs.com.vn Tran Buu Quoc Institutional Client Services (ICS) Quoc.TranBuu@mbs.com.vn Key interest rates Rates Before Present Basic 9% 9% Refinancing 7% 6.5% Discounting 5% 4.5% Ceiling of deposit rate 6% 5.5% OMO rate 5.5% 5% Abbreviations CDS: Credit Default Swap HNX: Hanoi Stock Exchange MoF: Ministry of Finance NDF: Non-deliverable forward OMO: Open Market Operations ON: Overnight SBV: State Bank of Vietnam ST: State Treasury MBS: MB Securities USD: United States dollar VCB: Vietcombank VDB: Vietnam Development Bank VGB: Vietnam Government Bond VNBSP: Vietnam bank for Social Policies VND: Vietnam Dong Report from 1 st 20 th January, 2015 MONEY MARKET INTEREST RATES Interbank interest rates remained stable in the recent two weeks. The SBV has confirmed that Circular 36 will be implemented, as stated, from Feb 1st, Interbank interest rates stood high during January because of high demand for short term money in the market before Tet holiday. Overnight interbank rates varied around 3.5%, about 3.7% for the one week and 4.1% for the one month. The reform of Vietnam s banking system will continue more strongly in It is expected to see about 6 merger and acquisition deals in banks this year. Besides, banks continue to cut deposit interest rates at the beginning of the year. Eximbank posted its latest deposit interest rates with small declines compared to last month. Accordingly, the highest interest rate for VND deposits went down from 7.7% to 7.5% per annum. Besides, Vietcombank, Lienvietpostbank and a few other banks also decided to ease their VND deposit interest rates. The SBV has confirmed that Circular 36 will be implemented, as stated, from Feb 1st, 2015, even though the central bank has received requests to delay the effective date. This announcement shows the determination of the SBV to adjust the activities in the banking system and reduce risks for the financial market in the long term. Circular 36 will affect other fields in the domestic financial market such as securities, real estate, bonds, and banks. However, this could be seen as an opportunity for financial institutions to have strong reforms with more security in the coming time. As CPI is forecasted to rise slowly by around 4% YoY in 2015, banks still have more room to decline interest rates further to support firms. Chart 1: Interbank interest rates in VND (%) Source: MB & SBV VND/USD EXCHANGE RATE After the SBV raised the VND/USD reference rate by 1% from Jan 2015, the forex market became stable and the SBV continued to buy USD reserves. The SBV increased the VND/USD reference rate by 1% from 21,246 to 21,458, applied from Jan 7th, Hence, the USD is allowed to trade at VND 21,243-21,673. Raising the exchange rate now is considered reasonable and expected to bring positive impacts to export activities and trade balance, bolstering GDP growth this year. Following the exchange rate adjustment, foreign currency

2 supply has been smoothened and ample, The State Bank has bought USD at the beginning of the week as several commercial banks were willing to sell. After a 5-month break, foreign currency purchase to raise reserves has been resumed. The interbank VND/USD rates varied around 21,340-21,390. Unofficial rates stood around 21,435-21,460. Chart 2: VND/USD exchange rate Source: MB, MBS OPEN MARKET OPERATIONS The SBV net withdrew money considerably via bills and repos in the first half of January. Banking liquidity remained good. There was VND 14 trillion was net withdrawn via repos in the OMO in the recent two weeks. Additionally, the number of issued bills stood about VND 35.4 trillion. Whereas, about VND 41.4 trillion of SBV bills matured. Therefore, the SBV net withdrew about VND 8 trillion via repos and bills so far this month. Because payment demand often increases rapidly before Tet, we expect that the SBV will net inject more money via OMO and bills going forward to ensure good banking liquidity. Chart 3: OMO net injection (trillion VND) BOND MARKET Bond market became active in the first month of the year thanks to high bond demand. Bond interest rates declined slightly. Demand for the VGBs increased in the last two weeks with high successful rates of auctions. About VND 3 trillion of VGBs were successfully issued with successful ratio of 75%. Most of them were 5 -

3 10 year bonds and bid to ask ratio reached about 3 times. Besides, demand for guaranteed bond also stood high. About VND 2.8 trillion of VDB and VBSP bonds were issued with high successful ratio of 62%. Bond interest rates went down slightly in compared to the end of last year. The State Treasury planned to issue VND 70 trillion of 5-15 year VGBs in Q In Q1, credit growth is often lower than in the year end. Besides, the number of matured VGBs stands high in Q1 and therefore banks often demand more bonds. Chart 4: VGB yield curve (%) Chart 5: Monthly issued VGBs (VND1,000 bn) Source: MBS, Bloomberg Domestic Open Market Operations Table 1: Recent SBV bill auctions Issued Maturity Winning amount Winning Matured date Date IR (%) 1/19/ /20/2015 1/19/ /20/2015 1/19/ /16/2015 1/19/ /16/2015 1/16/ /17/2015 1/16/ /17/2015 1/16/ /13/2015

4 1/16/ /13/2015 1/15/ /16/2015 1/15/ /16/2015 1/15/ /12/2015 1/15/ /12/2015 1/14/ /15/2015 1/14/ /15/2015 1/14/ /11/2015 1/14/ /11/2015 1/13/ /14/2015 1/13/ /14/2015 1/13/ /10/2015 1/13/ /10/2015 1/12/ /13/2015 1/12/ /13/2015 1/12/ /9/2015 1/12/ /9/2015 1/9/ /10/2015 1/9/ /10/2015 1/9/ /6/2015 1/9/ /6/2015 1/8/ /9/2015 1/8/ /9/2015 1/7/ /8/2015 1/7/ /8/2015 1/7/ /4/2015 1/7/ /4/2015 1/6/ /7/2015 1/6/ /7/2015 1/6/ /6/2015 1/6/ /3/2015 1/5/ /6/2015 1/5/ /6/2015 1/5/ /5/2015 1/5/ /2/2015 Domestic bond market Table 2: Recent VGB auction on HNX Issue date Issuer Tenor Winning Winning IR Volume (%) Bid Volume 15/01/2015 VBSP /01/2015 VBSP /01/2015 VBSP

5 15/01/2015 VBSP /01/2015 VBSP /01/2015 VDB /01/2015 VDB /01/2015 State Treasury /01/2015 State Treasury Source: HNX Table 3: Bond Auctions Schedule on HNX Issuance Issue date Issuer Tenor type Bond type Volume Auction date 28/01/2015 VBSP 3 First time Guaranteed /01/ /01/2015 VBSP 5 First time Guaranteed /01/ /01/2015 VBSP 10 First time Guaranteed /01/ /01/2015 VBSP 15 First time Guaranteed /01/ /01/2015 VDB 10 First time Guaranteed /01/ /01/2015 VDB 5 First time Guaranteed /01/ /01/2015 VDB 3 First time Guaranteed /01/ /01/2015 KBNN 5 Large Batch VGBs /01/2015 Source: HNX Table 4: Outright transactions on HNX Date Remain -ing tenor Code Price (VND) Yield (%) Volume Value (VND bn) 19/01/ TD , , /01/ TD , ,500, /01/ TD , ,000, /01/ TD , , /01/ TD , ,000, /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , ,000 53

6 15/01/ TD , , /01/ TD , ,000, /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , , /01/ TD , ,000, /01/ TD , , /01/ TD , ,000, /01/ TD , ,000, /01/ TD , , /01/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , ,000, /1/ TD , , /1/ TD , , /1/ TD , , /1/ TD , ,000, /1/ TD , , Source: HNX Regional Bond Market Table 5: Local government bond yields in Jan N 2N 3N 5N 7N 10N USA Singapore Vietnam

7 Indonesia Malaysia Japan China Thailand Chart 6: Vietnam 5 year CDS Chart 7: Yield of international government bonds issued in 2005 (%)

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