Vietnam - Banks believed to be the culprit behind dollar price increases

by lexie Mon Oct 31, 2011 9:45 am

October 31, 2011

Banks believed to be the culprit behind dollar price increases

The dollar fever, which has been lasting several days, is believed not to be created by the black market as usual, but by commercial banks. The dollar price increases and the interbank interest rate increases have benefited a lot of banks.

Some banks control dollar prices?

A senior executive of a joint stock bank has affirmed that the dollar price increases in the recent days has not been caused by the imbalance in the dollar supply and demand. He expressed his doubts about the collusion of some big banks which join forces to control the dollar price.

The executive has affirmed that the supply remains stable, while the demand of the national economy does not increase significantly.

The main reason that makes dollar price escalate is that some big banks, which have abundant money, have suddenly tightened the lending in both dollars and dong to the small banks with weak liquidity.

As for matured dollar loans, big banks recover debts and do not extend the loans if the borrowers do not have collaterals in Vietnam dong. Meanwhile, as for the loans in dong, small banks can only extend the borrowing if they do not have collaterals in dollars. Especially, some banks accepts gold as the collaterals for both dong and dollar loans.

As a result, a lot of small banks which have problems in liquidity, have to move heaven and earth to buy dollars to pay the debts which become due, or to use as the collaterals for Vietnam dong loans. That explains why the dollar price in the interbank market has been escalating, while the traders in the black market, who try to fish in troubled water, have also been pushing the dollar prices up.

In the “dollar fever” which occurred in history, the dollar price escalated because the traders on the black market tried to push the prices up to make money. However, things are different these days: the dollar price on the black market goes up following the price increases on the official market.

In the last few days, the actual dollar prices applied by commercial banks in transactions once reached 21,900 dong per dollar, while the black market’s price once hit the 21,800 dong per dollar threshold. People and businesses, who had dollars, refused to sell dollars to banks at the prices fixed by commercial banks after referring to the exchange rate announced by the State Bank.

As such, the dual exchange rate (the existence of two exchange rates – the rate for official quotation and the rate applied in real transactions) has been resumed. Commercial banks have complained that they have to accept to buy dollars at the prices much higher than the quoted prices

The move by big commercial banks has not only caused chaos in the foreign currency market, but also made the interbank interest rate skyrocket. The dong interest rate in the interbank market once climbed to 30 percent, while the dollar interest rate to 5-6 percent.

All the happenings recently have pushed small banks with weak liquidity against the wall, while bringing benefits to big banks.

Market cools down, but worries exist

On October 27, the dollar market cooled down after local newspapers reported that the State Bank is strengthening the inspection over the currency trading activities. On the interbank market, the dollar was offered to purchase at 21,370 dong per dollar and to sell at 21,420 dong per dollar. On the afternoon of the day, the price moved up to 21,380-21,420 dong per dollar. The prices on the black market were 21,370-21,450 and 21,470-21,530 dong per dollar, respectively.

However, the actual prices are still higher than the prices quoted by commercial banks. Manager of a small joint stock bank said that after the instruction by the State Bank, the deposit and lending interest rates have been eased. Since big banks and small banks now apply the single interest rate of 14 percent per annum, depositors now tend to withdraw money from small banks to deposit at big banks

http://www.vietfinancenews.com/2011/10/banks-believed-to-be-culprit-behind.html#more