In August, Vietnam State Bank issued a number of important decisions, aiming at reducing interest ground in currency market. Naturally, these decisions have somewhat impacted Vietnam stock market.
Despite being initially thought that it would be difficult and uneasy to beat the target of reducing interest rate in current context by purely economic measures, preferential interest rates offered by commercial banks to small and medium enterprises, private manufacturing ones has conquered opinions which are supposed to be the most prudent.
Concentrating on reducing interest rate
To beat such target, firstly, State Bank conducted their commitment by a variety of legal documents. In August only, State Bank issued up to 13 new Circulars, among which there are many ones that aim at reducing interest rate and stabilizing currency market, especially:
Firstly, Circular No. 22/2011/TT-NHNN modified and added some clauses in Circular No. 13/2010/TT-NHNN dated May 20th 2010 by State Bank’s Governor regulating ratios to ensure safety in credit institutes’ operation. Accordingly, State Bank diminished credit ratio from mobilized capital of commercial banks and adjusted risk coefficient of some properties in form of foreign currency when calculating Capital Adequacy Ratio. The main purpose of State Bank is to loosen credit from banking system to the economy, through removing barriers of credit ratio from mobilized capital up to 80 percent as before. This addition of loan will increase liquidity and reduce costs for commercial banks, thereby actively serve the target of reducing interest rate. It can be seen the reasonable coincidence between the date of taking effective of Circular No. 22 (September 1st) and the time starting to reduce interest rate to 17 – 19 percent per year which was promised by State Bank for many times.
Secondly, Circular No. 27/2011/TT-NHNN modified and added some clauses of reserve requirement for credit institutes attached with Decision No. 581/2003/QD-NHNN dated June 9th 2003 by State Bank Governor. Accordingly, overseas deposits in foreign currency of credit institutes have to make reserve. At the same time, State Bank also issued Decision No. 1972/QD-NHNN regulating minimum reservation ratio of 1 percent with this kind of deposit. State Bank said that the decision is to limit foreign currency credit growth, help to stabilize currency and foreign exchange market. Previously, this department also decided to increase by 1 percent of minimum reservation ratio in foreign currency, which was the third time this year.
Besides, State Bank had an important meeting with 12 big commercial banks to reach an agreement on target of reducing interest rate. After the meeting with State Bank Governor, heads of 12 commercial banks in Hanoi agreed to decrease interest rate to 17 – 19 percent since the early September. However, rate 17 – 19 percent has only been applied for few enterprises and heavily administrative enforcement but not really reduced interest ground so that all enterprises are benefited from economic measures.
Positive reaction from stock market
Although it hasn’t been particularly evaluated about scale and limit of enterprises benefited from that policy of State Bank, Stock Market has quickly had positive reactions. It can be seen from market happenings since the middle of August that indicators have recovered strongly in rather short time with increase of about 15 percent; in addition, liquidity is also maintained at high level with many consecutive days whose total transactions exceed 100 million units.
After each speech of the Governor and dispatch from this institute, stock market has made breakthrough with hundreds of codes increasing their ceiling, coming back to reduce the point of the world market. It means that stock investors have great expectation and can get over global crises which are pervading at the moment.
Investors highly expect the recovery of the market not only because of interest fall but also since they look forward to currency loosening possibility – which is regarded as a cure for stock market recovery. From macro angle, quoting enterprises will have difficulties eased and improve their business status. From money flow point, stock market also expects to greet new credit flow to boost share value growth. Psychologically, when input interest rate fall, it will be less attractive than stock market; therefore, investors will withdraw their money to invest into this channel. Especially, with share price fell too low as before, investment into share will not be risky unless mass enterprises go bankrupt.
However, until now, when it hasn’t been appraised about limit and scale of beneficiary from policy to reduce interest rate for enterprises, Stock Market has seen a rather strong growth with many signals of short term speculation, investors should be cautiously with decisions to buy in. So as the market can continue to go up, beside need of positive information especially from State bank, there should be money flow strong and stable enough to suffer short-term profit pressure.
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