Vietnam: Foreign currency credit squeeze may be implemented soon

by **ADMIN** Mon Aug 01, 2011 7:32 am

Foreign currency credit squeeze may be implemented soon

The State Bank of Vietnam has been keeping close eyes on foreign currency credit growth over the last few months and the statistics collected from commercial banks would help define cooling measures, a source revealed.

The agency reported 22.21 percent advancement in foreign currency loans against the beginning of the year whereas that in dong grew merely 2.72pct. The continuing scorching foreign currency credit has prompted commercial banks’ further capital mobilisation in July. Mobilisation in foreign currencies as of June was estimated to jump 8.89 percent while that in dong gained a modest 1.15 percent increase.

Such difference in credit growth rate has been largely due to appealing interest rates in foreign currency than in dong. Similarly, taking loans in foreign currencies and subsequently selling for dong have been principally helped by high expectations of potentially stable foreign exchange rates.

The foreign currency deposit interest rate cap is fixed at 2 percent for individuals and 0.5 percent for enterprises with a view to prevent holdings of foreign currencies. After initial regulatory compliance, that rate, however, has recently been raised up to 4 percent, which would mean the highest lending rate being no more than 10pct per year, much lower than that in dong of 20-22pct as at present.

It is assumed that such rapid credit advancement would hardly be slowed down by such instruments as interest rates and foreign exchange rates since the first which has already been fixed would scarcely experience further increases while foreign exchange rate stabilisation for inflation control is the macroeconomic key target. Yet, the central bank affirms appropriate measures will shortly be available.

The commercial banks’ ongoing efforts to attract US dollars are believed to meet enterprises’ needs, which could result in virtual demand and supply. Presently, US dollar loans are resold for dong for business purposes which would lead to abundant supply of greenbacks and could consequently bring foreign exchange rates down. Nevertheless, enterprises would rush to banks for US dollars at such loans’ maturity, which would in turn drive foreign exchange rates up due to stronger demand.

For the past few weeks, the inter-bank exchange rate has been maintained at 20,608VND/USD which is believed to be higher than the actual market rate due to the current excessive dollar supply.

http://vietnambusiness.asia/foreign-currency-credit-squeeze-may-be-implemented-soon/

by Cardiac99 Mon Aug 01, 2011 4:13 pm

Wouldn't this put a substantial raise on the VND/USD rate?

Vietnam: Foreign currency credit squeeze may be implemented soon

Vietnam: Foreign currency credit squeeze may be implemented soon

Re: Vietnam: Foreign currency credit squeeze may be implemented soon