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VIETNAM - Central bank slashes forex position at banks to 20pct

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VIETNAM - Central bank slashes forex position at banks to 20pct

Post  lexie on Thu Mar 22, 2012 1:45 pm

March 22, 2012

Central bank slashes forex position at banks to 20pct

The central bank has just issued a circular on foreign currency position supervision targeting local and foreign credit institutions, slashing the position to 20% from the current 30%.

With the new circular, the figure of either total long position or total short position at the closing session of lenders shall not exceed 20% of their equity capital.

The newly-issued rule requires each foreign bank’s branch in Vietnam with equity capital of no more than US$25 million to comply with the amount of US$5 million or below in its total long position. The same limit is also imposed on total short position at the end of the day at these institutions.

The limit of total foreign currency position of industry players is based on the ratio of total long position or total short position divided by their equity capital. Equity capital amounts in this case are counted as of the month before such institutions submit reports to authorities.

According to the circular effective from May 2 this year, local banks have to report their foreign currency positions of the day before to the central bank by 2p.m. on normal weekdays.

Economist Le Xuan Nghia said narrowing total foreign currency positions was meant is to restrict lenders from speculating foreign currencies, thus helping stabilize foreign exchange rates at home.

He noted the central bank had also released another circular on foreign currency lending activities at the same time.

The second regulation only allows banks to give out credits in U.S. dollars to those companies being able to service bank loans by their own revenues. This means those firms without foreign currency revenues, or importers, need the permission from the central bank to borrow money from banks.

The moves by the central bank are aimed at protecting the market from being dollarized and improving Vietnam dong value against the U.S. currency.

The inter-bank exchange rate has remained unchanged for three consecutive months, at VND21,828 to the dollar. Vietcombank on Wednesday set the rate at VND20,830 for buying and VND20,890 for selling a dollar, just slightly higher than the level on the inter-bank market.

Over the last three months, ample supplies of foreign currencies at local commercial banks have pulled down considerably the gap between the exchange rates they quoted and the inter-bank figure. On the unofficial markets, one dollar is bought at VND20,850 and sold at VND20,950.


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