The State Bank of Vietnam - the country’s central bank - on Tuesday injected some VND5 trillion ($240 million) into the banking system for urgent liquidity support following the arrest of banking and football tycoon Nguyen Duc Kien.

The State Bank of Vietnam reassured depositors on the liquidity sufficiency of the banking system, while actively pumping money via the open market operations (OMO) channel.

According to Reuters’ data, the VND5 trillion OMO injections with an interest rate of 8.8 percent a year has been the largest amount of money pumped via OMO since early February, the Lunar New Year holiday, newswire Vneconomy reported.

It is equal to the combined values of all the OMO transactions from June to August 20, 2012.

In July and August alone, OMO channel saw very few successful trading sessions with the highest value reaching some VND1.065 trillion on July 13, 2012.

But OMO channel on Tuesday immediately witnessed active trading after news of Kien’s arrest and SBV’s injection was released.

On the interbank market, overnight rates were quoted at 4.5-4.7 percent a year, while those for one-week and one-month terms were 4.8-5 percent and 6.5-7.5 percent a year respectively, slightly higher than yesterday.

Central bank’s reassurance

SBV said on its official website that Kien is presently not involved in the management and administration of Asia Commercial Joint Stock Bank (ACB) where he served as vice chairman of the board of directors and the board of founders 2-3 years ago.

Therefore, ACB depositors should set their mind at ease, said SBV.

“However, SBV has also planned to closely monitor changes in the monetary market for available liquidity support when necessary to ensure stability and the safety of the system,” SBV said on its website.

The message was reiterated by SBV Governor Nguyen Van Binh at a meeting with the Standing Committee of the lawmaking National Assembly which was broadcast live on Tuesday afternoon.

“I have directed municipal arms of SBV nationwide to draw up necessary support plans to secure the liquidity of ACB and other credit institutions in case there are mass withdrawals,” Binh said at the meeting on bad debt situation and the national banking restructuring progress.

A leader of the Ho Chi Minh City branch of SBV told VnExpress that it had pumped a significant amount of money, which is mainly to support bank liquidity.

"We are ready to offer timely liquidity support, not only for ACB but for any other banks affected by Kien’s arrest."

“The arrest [Monday evening] has caused a real psychological impact on the financial market, though Kien is not operating any banks now,” he said.

ACB ordered suspension of disbursement

Meanwhile, ACB on early Tuesday morning asked all the branches and transaction offices to suspend the disbursement of all loans pending notice of the executive board for fearing of sudden liquidity stress following the arrest.

It also asked all the heads and their deputies at those places not to leave their offices.

But by late morning, noticing the situation did not turn negative as expected, ACB decided to approve disbursements concerning loans of under VND2 billion. All the loans which are worth over VND2 billion will be reported to ACB headquarters for final approval.