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Vietnam - Businesses paying debts, commercial banks borrowing money

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Vietnam - Businesses paying debts, commercial banks borrowing money

Post  lexie on Mon Oct 24, 2011 1:33 pm

24/10/2011 08:33:00 AM (GMT+7)

Businesses paying debts, commercial banks borrowing money

VietNamNet Bridge – Following a sharp fall in September, the dong outstanding loans in the last two weeks keep decreasing. Businesses now do not borrow money to store materials for the year-end production season, while those who borrowed gold and foreign currencies before, are trying to pay debts.

The report about the credit market in the third quarter of the year released by the State Bank of Vietnam shows that the total credit in the national economy had increased by 8.16 percent by September 23 in comparison with the end of 2010. However, the figure represents the decrease of 0.94 percent from August. The sharp fall was seen in the foreign currency credit – by 2.27 percent, while the dong outstanding loans decreased by 0.49 percent.

Production season nears, but businesses don’t intent to borrow money…

A banker has revealed the dollar and gold credit has been decreasing sharply over the last month with the credit in dollar down by 2 trillion dong and gold by 5000 billion dong. Meanwhile, the dong outstanding loans have been decreasing over the last two weeks.

The banker said that businesses now do not intend to borrow money, even though the year-end production season is nearing. Those, who borrowed foreign currencies and gold, are paying debts, and many of them are trying to pay debts before the loans become matured.

In the past, many businesses borrowed dollars at the interest rate of six percent per annum, then sold the borrowed dollars for dong and deposited back to the banks to obtain the higher interest rate of 18 percent per annum. If deducting the exchange rate fluctuation, estimated at five percent and the interest rates they have to pay for the foreign currency loans, they would earn a profit of 7 percent.

However, as the dong deposit interest rate has dropped to 14 percent as requested by the State Bank, businesses think that it would be better to pay debts right now, because they can buy dollars to pay debts now at reasonable prices. If they pay debts later, the dollar prices would be higher, because the last months would be the high season.

Commercial banks are also urging gold borrowers to pay debts, because under the Circular No 33, banks must take responsibility before the State Bank about the lending of gold to serve the speculation purpose. The requirement has been set by the central bank with an aim to stabilize the foreign currency and gold markets.

State owned banks and some big joint stock banks have eased their dong lending interest rates to 19 percent from 22-24 percent as promised, while the dollar lending interest rates have also been lowered to 5-6 percent from 8 percent. However, businesses seem to be not eager for capital.

Do Minh Toan, Deputy General Director of the Asia Commercial Bank ACB, said that unlike the previous years, businesses do not rush to borrow capital to store goods, because they fear that the demand would be weak in the current circumstances, when people have to fasten their belt.

A businessman in the steel sector has revealed that he would try to sell steel products soon to get money and speed up the capital turnover. “In the past, they borrowed 10 dong, but now they borrow 3 or 4 only,” Toan said.

… but interest rates keep rising

Despite the decreasing outstanding loans, the interbank interest rates and interbank exchange rates still keep rising. On October 18, the interbank exchange rate announced by the State Bank of Vietnam increased for the eighth consecutive time in the last two weeks to 20,730 dong per dollar. The dollar prices quoted by commercial banks have also been raised to the ceiling levels at 20,925-20,930 dong per dollar.

In general, the black market’s dollar price is always higher than the price quoted by banks. However, a strange thing occurred on October 19 that while the black market’s price dropped to 21,460 dong per dollar, the bank’s quoted price stayed at 21,495 dong per dollar.

Analysts comment that the high offered dollar price shows how banks are seriously lacking dollars.

According to Tran Phuong Binh, General Director of Dong A Bank, big banks now have profuse capital, but small banks have to borrow money from other banks to improve their liquidity, thus pushing the interbank interest rates to 25-30 percent.

As such, while businesses are trying to pay debts, commercial banks are trying to borrow money.


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