It was estimated that outstanding foreign currency loans, mainly in US dollars, among banks, were significant at nearly 300 trillion VND (12.76 billion USD).(Source: cafef.vn)Hanoi (VNS/VNA) -Governor of the State Bank of Vietnam (SBV) Le Minh Hung has recently directedthe entire banking industry to strictly control foreign currency lending tobetter minimise dollar speculation and fight against dollarisation in theeconomy.
According to the SBV’s currentregulations, commercial banks can still provide short-term loans in foreigncurrencies to export firms that need funds for production and have turnovers inforeign currency until the end of this year. After receiving such loans, theexporters must immediately sell the amount of foreign currency borrowed to thelenders to get VND, using the spot forex trading method, except in cases wherethe foreign currency will be used to make payments.
It was estimated that outstandingforeign currency loans, mainly in USD, of banks, especially State-owned ones,were significant at nearly 300 trillion VND (13.21 billion USD).
VietinBank topped the list withoutstanding foreign currency loans of almost 110 trillion VND by the end ofJune, followed by Vietcombank with 99.2 trillion VND and BIDV with 86.2trillion VND.
Some private banks also reportedhigh foreign currency loans, such as Sacombank with 12.7 trillion VND, Eximbankwith 10.4 trillion VND and Techcombank with 10.1 trillion VND.
Exporters prefer borrowing indollars as the interest rate for dollar loans is lower than those in VND.Currently, banks are listing interest rates at 2.8-4.7 percent per yearfor short-term dollar loans and 4.5-6.0 percent for medium and long-term dollarloans. Meanwhile, interest rates are 6-9 percent per year for short-term VND loans,and 9-11 per year for medium- and long-term VND loans.
According to the SBV’sregulations, the interest rate for dollar deposits at banks is zero percent,but banks said that they have to spend 0.7 percent for provision funds indollar loans and some 1.5 percent for operating costs.
Experts also recommended the SBVtighten foreign currency lending, especially when the pressure on the country’sdollar/VND exchange rate is forecast to rise.
If the SBV prohibited foreigncurrency lending, banks would have to sell the dollars to the SBV and get VND forlending. Meanwhile, it would help the SBV increase the country’s foreignreserves, better control foreign currency supply and exchange rate, as well asfight against dollarisation of the economy, the experts said.
Banking expert Phan Minh Ngocsaid that dollar lending makes dollarisation of the economy more serious. Asmore local people use the dollar in their daily transactions, the effect of thecentral bank’s policies would be reduced.
Ngoc took inflation as anexample. When inflation is high, the central bank wants to increase interest ratesto control it. However, due to the dollarisation in the economy, local peoplewill prefer borrowing in dollars rather than in VND, which will mean thecentral bank’s interest rate hike policy to fight inflation will have littleeffect. This has been seen in some countries with hyper-inflation, where thedollar replaces the local currency while the countries’ central banks areunable to do anything.
Though the SBV had planned tostop foreign currency lending several times, it decided to extend such loans tohelp local exporters increase competitiveness and boost exports since theirbusinesses and production face difficulties according to the Government’sincentive policies.
However, the SBV affirmed that itwas only a short-term policy. In the long run, the central bank willdiscontinue the policy, and firms must gradually shift from borrowing to buyingand selling foreign currencies.-VNS/VNA
VNA
