Oct 25, 2012

Vietnam - Foreign currency deposits down, loan demand up

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VietNamNet Bridge – Businesses have demanded more loans in foreign currencies to prepare for the year-end production season. Meanwhile, banks have reported the sharp falls in the capital mobilized.

In principle, businesses would prefer borrowing capital in foreign currencies to Vietnam dong in order to enjoy the lower interest rates, if the dong/dollar exchange rate is stabilized.

It’s now the right time for businesses to access foreign currency bank loans, as the exchange rate has been stabilized for a long time. Pham Linh, Deputy General Director of OCB said on Dau tu that OCB provides loans to farm produce export companies in dollars at 6-6.5 percent per annum only.

Meanwhile, if borrowing in Vietnam dong from commercial banks, they would have to bear the high interest rate of 15 percent per annum.

Pham Thien Long, Deputy General Director of HD Bank, said the demand for foreign currency loans, has agreed that dollar loans prove to be a good choice for enterprises. He said most of the clients borrowing in dollars are the ones which need dollars to import materials for local production. The businesses would have the income in dollars after they export the products.

Meanwhile, the enterprises, which make products for domestic consumption, which means they do not have the income in foreign currencies, are not the subject to dollar loans, under the current regulations. The enterprises are not allowed to buy dollars, and they have to buy dollars from banks to make payment for the import materials.

Reporting the increase in the demand for foreign currency loans, but analysts believe that the outstanding loans in foreign currencies would not increase sharply, because those, who do not have the income in foreign currencies to pay bank debts, cannot access foreign currency loans.

This can also be attributed to another reason that commercial banks’ capital is not profuse enough to push up lending. The big gap between the dong and the dollar deposit interest rates (2 percent for dollar and 9 percent for dong deposits) has led to the sharp falls of the dollar deposits.

It’s clearly more profitable to keep dong at this moment than dollars. This has prompted people to sell dollars for dong to deposit at banks, instead of depositing dollars.

Thoi bao Ngan hang has quoted a sourced from the HCM City Branch of the State Bank of Vietnam as saying that the amount of capital in foreign currencies had decreased by 9.62 percent by the end of September in comparison with the end of 2011, while the mobilized dong capital had increased by 11.53 percent.

When analyzing the deposits’ structure, the officials from the HCM City branch have found out that the deposits from the public have been increasing rapidly by 18.3 percent, accounting for 46.8 percent of the total capital mobilized.

Especially, despite the “ACB incident” in August, (some senior executives of the bank were arrested for misconducts), deposits still keep inflowing into banks, which shows the recovery of the attractiveness of the dong against the dollar.

Also according to the HCM City Branch of the central bank, the demand for foreign currencies from businesses to make payment for goods and services increased sharply in comparison with the second quarter of the year.

However, Nguyen Hoang Minh, Deputy Director of the branch, has affirmed that the foreign currency supplies remain profuse enough to satisfy the demand of businesses and individuals.

He has also affirmed that the higher demand for foreign currency loans would not put any pressure on the dong/dollar exchange rate.

Compiled by Kim Chi

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