Rate hike to reduce interbank loans further: Bankers

The Vietnamese central bank's move to raise interest rates last week may put further pressure on the already badly strained interbank market, traders said on Monday.

Loans in the interbank market have already shrunk in the past few weeks because of cash withdrawal by major banks and smaller banks' reluctance to pay higher rates, they added.

A treasury manager at a major Hanoi-based lender said his bank had restricted loans on the interbank market in recent weeks to ensure it had a safe level of liquidity.

"We will continue to do this, as long as we still see tense cash flows," he said. "For smaller banks, I think the situation will be much tougher when the interbank loans are limited".

The State Bank of Vietnam raised the refinance rate and reverse repurchase rate, which it charges lenders via the open market operations, both by 100 basis points to 13 percent on Friday.

"This is a way the central bank tightens the credit growth in the second quarter," said a trader in a Hanoi-based bank.

Loans in the Vietnamese banking system rose around 4.9 percent in the first three months, Governor Nguyen Van Giau told reporters in a government press conference last week.

The central bank plans to keep the credit growth at below 20 percent this year, slowing from an initial target of 23 percent.

"It is difficult to say how banks will seek funds now, because the deposit rate is capped and the interbank market has almost frozen," said the trader.

The tight liquidity is also a result of the central bank's limited cash injection via the open market operations, in which the injections now meet just 15-20 percent of the lenders' demand, state media have reported.

There is little possibility that the rate levels could fall, at least until the end of the second quarter, Hanoi-based Bao Viet Securities Co said in a Monday report.

The consumer price index is expected to remain at a high level, rising 1.6-1.8 percent this month from March, the Ministry of Industry and Trade has said.

tuoitrenews, Reuters

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