Banks up dollar deposit rates in search for forex

August 01, 2011 | 07:37
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Some local lenders have broken ranks to offer higher than regulated dollar deposit rates.
Some economists are calling for limiting forex credit by raising banks’ obligatory foreign currency reserves

The State Bank has capped dollar deposit rates at 2 per cent for individuals. However, local banks are offering promotion programmes and negotiate interest rates with customers up to 3-4 per cent, per year.

Le Quang Trung, deputy general director of Vietnam International Bank (VIB), said this phenomenon resulted from market demand and supply. Forex credit in the year ended June 20 expanded 23.47 per cent against the end of 2010.

“The main reason for such an increase is the huge gap between dong and dollar lending rates. Vietnam dong borrowing rates are as high as 20-21 per cent, per year while dollar lending rates stay at only 8 per cent. The gap of 10-12 per cent is a motivator for enterprises to borrow dollars,” said Trung.

Meanwhile, the growth rate of foreign currency deposits cannot follow lending growth. Until June 20, foreign currency mobilisation only gained 8.94 per cent against the end of 2010 and is decreasing, down 3.62 per cent month-on-month.

“Moreover, international and domestic economic organisations forecasted that until the end of this year, the exchange rate will stay stable. This forecast reduces the worry about exchange rate risks and encourages enterprises to borrow more foreign currency,” added Trung.

Local economists warned another problem was the difference in maturity of foreign currency capital and credit. Normally a forex deposit term is less than three months while the lending maturity is from six to nine months.

“Anticipating foreign currency supply would not rise dramatically over the next six months, many banks tried to attract more foreign currency,” a banking analyst said.

The central bank’s Circular 13/2011/TT-NHNN stipulates that from July 1, 2011 state-owned corporations, groups and their member units where the state holds a more than 50 per cent stake  are obliged to sell dollars to authorised credit organisations.

According to the General Statistics Office, in the first half of this month the trade deficit hit $6.65 billion. Meanwhile, other supplementary foreign currency sources such as foreign direct investment (FDI), foreign indirect investment (FII) and remittances were on a decline.

Disbursed FDI in the year ended June 22 dropped by 1.9 per cent year-on-year to $5.3 billion, ending the upward trend of the net FDI inflow over the previous two years. The National Financial Supervisory Commission statistics show that Vietnam received only $350 million in FII in the first six month of 2011, a big fall from $1.79 billion in the same period last year.

Economists said the State Bank should limit forex credit more strictly by continuing to raise foreign currency obligatory reserves. This will directly increase banks’ expenses. Banks would then have to decrease mobilisation rates while increasing lending rates for foreign currencies to offset the mobilisation capital used in banks’ required reserves.

But Trung of VIB argued that “from  banks’ management point of view, the rise in required reserves is too fast and not safe for the commercial banking system.”

vir.com.vn

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