Recent surge in overnight interbank rates pose limited risks to the banking sector

We view the surge in interbank rates reflects the tighter liquidity in the banking system following the withdrawal of market liquidity by the State Bank of Vietnam (SBV) to manage currency volatility. Small and some mid-sized banks in Vietnam are relatively more reliant on interbank funding for their operations and liquidity management. However, we expect the impact of higher interbank rates on banks to be manageable. Firstly, banks have coped with much higher funding costs in the past. And we expect interbank rates to normalize over the course of 2024 as currency pressures stabilize.