Transferring loans in US dollar to those in dong will offer businesses a favourable dong interest rate of 0.5 percent to 1.5 percent per year below the actual rate, said a commercial bank’s leader.
The foreign currency market has made fairly remarkable achievements in the recent times. The trend that residents’ deposits in foreign currencies are being shifted to those in dong has gradually become evident. Still, many banks express concerns on foreign currency liquidity in the mobilising and lending market.
The decision to lower the ceiling of the mobilisation rate to 2 percent per year has by far worked as many people have turned to keep savings in dong instead of US dollar. The latest statistics from the central banks show a 3.62 percent decline in capital mobilisation in foreign currencies as of June at all commercial banks against the previous month and a merely increase of 8.94 percent compared to the end of 2010.
Foreign currency credit, however, has surged by 2.43 percent over the last month and 23.4 percent against the end of 2010. The total value of loans in US dollar even surpasses 140 percent to 150 percent of the total US mobilised resulting in imbalance between foreign currency mobilisation and lending.
A few banks have resorted to pushing interest rates for deposits in foreign currencies well above the ceiling rate. Deposits in foreign currencies from residents have slowly grown since late June and many customers who have withdrawn the deposits at maturity would rather not deposit back due to the unappealing interest rate of 2 percent per year. Existing customers whose deposits are more than US dollar 10,000 could therefore be offered a negotiated interest rate of 1pct- 1.5 percent per year above the ceiling rate for one month – six month terms.
Many commercial banks have now enjoyed a greatly improved foreign currency liquidity condition, which would facilitate businesses’ and individuals’ legitimate needs of foreign currencies. However, loans in foreign currencies have been restricted due to a sharp decrease in capital mobilised. Recently, commercial banks have been requested to tighten foreign currency credit since 1st July under the central bank’s regulations.
According to Phan Thanh Hai, manager of the Capital Department at GiadinhBank, the largest balance is topped by deposits on three-month term, followed by those on one month term and non term. Barely do any customers keep deposits on six month term. Banks therefore are reluctant to grant long term loans for fear of risks in liquidity, particularly for foreign currency credit given the currently fluctuating deposits in foreign currencies.
Like US dollar mobilisation rate at commercial banks, that on the interbank market has also witnessed a rebound following a sharp decline.
The central bank’s last week report has revealed a slight increase in the average US dollar interest rates in the interbank market for almost every term against the previous week, hanging from 1.47 percent to 3.3 percent per year. The average overnight rate stays at 0.85 percent per year, an increase of 0.16 percent over the last week.
Still, US dollar loans are of high demand as the US dollar interest rate of 6.5 percent to 8 percent per year are much more economical to enterprises than the dong interest rate of 18pct-22pct per year. Additionally, the assumption of stable foreign exchange rate from now until the end of the year has promoted US dollar loans for three month to six month terms, particularly for import and export enterprises.
Currently, commercial banks encourage customers to borrow in dong to purchase US dollars in an effort to minimise the imbalance between US dollar demand and supply in the credit market, especially in case of US dollar surplus in the market.
A privilege on dong interest rate of 0.5pct – 1.5pct lower than the actual rate has been granted to businesses which would transfer loans in US dollar into those in dong, said a commercial bank’s leader.