Dong credit growth in HCMC barely rises

September 2, 2011



Dong credit growth in HCMC barely rises



Total Vietnam dong loans at Ho Chi Minh City-based banks as of the end of August reached VND522.2 trillion, or a mere 1.24 percent increase compared to late 2010, the HCMC branch of the central bank reported.




This figure confirmed many banks’ opinion that dong credit can’t grow because of the impact of the high interest rate on borrowing demand. The banks say they are mainly lending to their old clients.


Though many banks have launched promotion programs to reduce the interest rate burden for their clients, especially exporters, and individual and household businesses, clients are still finding it hard to access loans.


Meanwhile, as of the end of August, loans in foreign currencies of the banks in HCMC have risen by 19.66 percent over late last year to VND231.2 trillion.


As explained by the central bank and experts, the big difference between interest rates in the Vietnam dong and the U.S. dollar made borrowers prefer foreign currencies over dong.


The current U.S. dollar lending rate is 6-8 percent a year but the rate of the Vietnam dong is as much as 20 percent.


Overall, the total outstanding loans of HCMC’s banks are VND753.4 trillion as of the end of August, or 6.26 percent higher compared to the end of 2010.


The difference between interest rates in the Vietnam dong and the dollar has also resulted in the opposite directions of the banks’ mobilizing and lending activities.


Whereas foreign currency lending prevails over the national currency, mobilization of foreign currencies is on the downtrend compared to that of the Vietnam dong.


Currently, the annual deposit interest rate for the greenback is capped by the central bank at 2 percent for individuals and 0.5 percent for businesses.


On the other hand, clients are enjoying the dong deposit rate at 14 percent, which can surge to 18-19 percent with big deposits upon negotiation.


The central bank has lately committed to keep the foreign exchange rate fluctuation within 1 percent, prompting many people to switch to Vietnam dong deposits.


According to the report of the central bank’s HCMC branch, the total mobilization of credit institutions is VND857.7 trillion as of the end of August, up by 6.38 percent against late 2010.


Mobilization in the Vietnam dong has reached VND657.8 trillion, or a rise of 8.89% over late last year, while mobilization in foreign currencies is VND199.9 trillion, dwindling by 1.12 percent.


In the short term, the fall in foreign currency deposits versus a rise in foreign currency lending would pressure not only the forex rate, but also the balance of foreign capital ratio and loans in foreign money.


The central bank has thus decided to raise the foreign reserve requirements by one percentage point, saying it would also inspect foreign currency credit growth at credit institutions.


http://www.vietfinancenews.com/2011/09/dong-credit-growth-in-hcmc-barely-rises.html