On November 9, the State Bank of Viet Nam's (SBV) six-month foreign exchange swap operation injected nearly 50 trillion VND into the banking system. Earlier, shortly after the plan was announced, the six-month foreign exchange swap rate on the interbank market had fallen to a level equivalent to the rate offered by SBV.
Securing funding through the Lunar New Year
On November 3, SBV announced the launch of a six-month foreign exchange swap operation involving the Vietnamese dong, with a maximum size of 2 billion USD. Under this transaction, credit institutions sell USD to SBV in exchange for Vietnamese dong (VND), while simultaneously agreeing to buy back the foreign currency at maturity. The trading session took place on November 6, with a value date of November 9. The 2 billion USD limit is equivalent to nearly 48.8 trillion VND if fully utilised. The 182-day maturity allows banks to use the VND funding for a longer period than was possible under previous short-term swap operations. When the transaction matures, banks must arrange sufficient VND funding to repurchase the foreign currency at the pre-agreed exchange rate.
According to Nguyen Linh Phuong, Deputy Director of the Monetary Policy Department at the SBV, credit institutions have actively participated in this operation. On November 9, nearly 50 trillion VND was injected into the banking system.
Immediately after SBV announced the operation, the six-month foreign exchange swap rate on the interbank market fell to a level equivalent to the rate offered by the central bank. Foreign exchange swap rates for maturities of three months or longer also showed a downward trend. “This development indicates that the policy measure has initially helped stabilise market expectations, creating favourable conditions for reducing the overall level of interest rates,” Phuong said.
A notable feature of the transaction is its maturity date. According to Vu Minh Truong, Deputy General Director of Viet Nam Prosperity Joint Stock Commercial Bank (VPBank), transactions conducted in November 2026 will mature in May 2027. The dong funding will therefore remain available beyond two important milestones for system liquidity: the December 31, 2026 year-end settlement date and the Lunar New Year holiday in February 2027. Knowing in advance when the funding must be repaid enables banks to be more proactive in planning their payment obligations and disbursements during the peak season.
Deputy General Director and Head of the Treasury and Foreign Exchange Division at Viet Nam International Commercial Joint Stock Bank (VIB) Tran Chi Thanh also described the extension of the swap maturity as a timely move, given that funding demand typically rises towards the end of the year. In addition to funding available through open market operations, which have maturities of up to three months, the six-month foreign exchange swap gives banks another option for managing the maturity profile of their funding. “As one of the banks participating in the first round of swaps with this maturity, VIB has gained an additional source of funding to manage year-end liquidity and meet the borrowing needs of businesses and individuals,” Thanh said.
Coordinating monetary policy instruments
For banks that raise funds in international markets, the transaction maturity is only one part of the equation. The other is the cost of converting foreign currency funding into dong to meet domestic funding needs. Tran Chi Thanh explained that an international syndicated loan used in this way involves two cost components. The bank must pay the cost of raising foreign currency funding and then incur an additional cost to swap it into VND. If the foreign exchange swap cost falls, the overall cost of making that funding available for domestic use may also decline, even if the cost of borrowing in foreign currency remains unchanged.
“The SBV recently provided a foreign exchange swap facility worth 2 billion USD with a six-month maturity and a swap cost of 2.25%. This is a relatively reasonable cost, lower than what banks are currently paying to raise funds in international markets. It will therefore create room for market interest rates to decline, in line with the SBV's objectives,” Vu Minh Truong affirmed.
Drawing on VPBank's experience, Vu Minh Truong said the bank had a large portfolio of international borrowings. The transaction with SBV enables the bank to swap foreign currency at a lower cost than before, thereby reducing its funding costs and creating more room to adjust lending rates in line with the orientations of the Government and SBV. For banks that already have foreign currency funding from international borrowings, the benefits of the operation are therefore reflected both in their ability to proactively arrange dong funding over several months and in the cost of using that funding.
Meanwhile, according to Tran Chi Thanh, the impact on deposit rates will also depend on the scale of the liquidity injection. If the additional VND supply is sufficiently large, commercial banks may be able to ease pressure to raise domestic deposit rates to meet their funding needs.
In light of this, the VIB representative expressed his expectation that the SBV would continue to support the banking system through foreign exchange swap operations in the coming period, in line with market developments. Against a backdrop of limited domestic deposit mobilisation, additional foreign funding would provide the banking system with more capital, diversify funding sources, and help stabilise deposit rates, thereby supporting sustainable growth in the period ahead.
Initial developments in the interbank market indicate that the first impact has been on foreign exchange swap costs. To translate this impact into lower borrowing rates for businesses and individuals, banks still need to balance the additional VND funding against the cost of their overall funding base and lending demand. When pressure to raise additional funds at high interest rates eases, banks are better positioned to stabilise their funding costs and take a more proactive approach to designing credit programmes. For businesses seeking capital to fulfil orders at the end of the year or prepare production plans for the beginning of the following year, the effectiveness of the policy measure will be reflected in their ability to access credit and the actual interest rates they pay.
Alongside the six-month foreign exchange swap operation, SBV will also begin purchasing foreign currency on a spot basis from November 11. According to Tran Chi Thanh, if foreign currency inflows from remittances and exports increase towards the end of the year, SBV may have more favourable conditions to purchase foreign currency, increase foreign exchange reserves, and inject additional VND into the market.
Spot purchases provide additional dong liquidity in proportion to the amount of foreign currency actually purchased. Under foreign exchange swap transactions, the amount of VND supplied is linked to the point at which credit institutions fulfil their obligation to repurchase the foreign currency. The distinct characteristics of these two instruments allow the monetary authority to select an appropriate method of supplying liquidity in response to developments in market liquidity and the foreign exchange market.
Deputy Director of the Monetary Policy Department at the State Bank of Viet Nam Nguyen Linh Phuong added that the central bank would continue to closely monitor macroeconomic developments and the money market in the coming period in order to determine the appropriate scale, maturity, and timing for the use of open market operations, refinancing, and foreign exchange swaps. The provision of VND liquidity to the banking system will be coordinated with the management of interest rates, exchange rates, and credit. The aim is to maintain liquidity at an appropriate level, support stability, and bring down the overall level of interest rates, thereby contributing to the double-digit growth target while stabilising the foreign exchange market, controlling inflation, and maintaining macroeconomic stability.
