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VIR-news
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Capital shortage medicine
Update: 14-7-2008
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The State Bank has given an unprecedented green light to local banks to convert foreign currency deposits into Vietnamese dong in a move expected to cure banks’ short-term capital shortages.
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The State Bank governor had approved in principle six banks’ petition to sell dollars derived from dollar deposits to the authority at the interbank market exchange rate, said a State Bank source. If the six banks need foreign currency to pay depositors, the State Bank would immediately sell back the amount at the interbank market exchange rate. So far, three state-owned commercial banks and three joint stock commercial banks have registered to sell $700 million under the new mechanism.
A Bank for Investment and Development of Vietnam (BIDV) source said the unique and flexible mechanism would provide local banks with an additional channel to get local currency capital during liquidity shortages.
“Mobilising local currency from the market has become much more difficult as the cash in circulation has been decreasing sharply over the last few months,” said the BIDV official.
According to the State Bank data, the total cash in circulation has downed by 7.13 per cent against December, 2007, and by 17.46 per cent against the same period in 2007. Meanwhile, total liquidity has gone up by just 4.48 per cent.
A State Bank source said that the bank would conduct dollar buying from next week. “It may not take the whole amount that local banks already registered. It should be noted that the amount from this channel should not be used for credit services and the State Bank will keep a close watch on the use of the capitalisation,” said the State Bank source.
However, financial experts have expressed concern that local banks could use the capital for credit services due to the State Bank’s limited inspection and supervision capacity. “The moral hazard should be taken into account. The mobilisation interest rate for dollar deposits is now around 7-8 per cent per year while lending rate in dong stands around 20-21 per cent per year,” said a financial expert.
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By Vu Giang
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