Tense signals on US dollar supply and demand
Source: 27-MAR-2008 Intellasia | Tien Phong
Mar 27, 2008 - 7:00:00 AM Banks' US dollar shortage for lending has been raised since the end of 2007 and becomes tense at the moment.

Viewing the balance of capital is foreign currency generally, the ratio of using new capital accounts for over 60% of total deposits but that of using deposits raised from local institutions and residents for lending service now stands at high.

Up to now, although the State Bank of Vietnam has not yet released any regulation on the ratio of using capital sourced from deposits in both dong and US dollar from domestic institutions and residents to serve lending service, according to general norms, a safe ratio is from 60% to 80% at most. However, during some recent years, especially from the last end of the year, the ratio of using capital in US dollar of credit institutions grew sharply.

Particularly in Hanoi, by the end of February 2008, credit institutions' foreign currency capital usage ratio for lending is 87.5% against 48.3% in ratio of using capital in the dong. The figure is 95.7% as for joint stock banks.

It is forecasted that by the end of this month, the ratio of using foreign currency will be increased much because the US dollar deposit is in the downward trend. In Hanoi, credit institutions' balance of US dollar last month declined by 3.3% as compared with the end of 2007 but the US dollar outstanding loans in the period surged by 19.4%, those for the dong were up 0.7% and 6.4% correspondingly.

Capital for lending exceeded 100% over deposits raised from institutions and residents so far, which forced banks to borrow foreign currency from the interbank market. However, due to the tense situation of the capital market, so borrowing loans from other banks also has faced many difficulties.

A source late last week said that a bank giant in fields of US dollar also had to seek hot loans worth several tens of US dollar from the interbank market.

There are a lot of reasons leading to banks' US dollar shortage. Firstly, Vietnam's trade deficit continuously widens. During the first quarter of this year, the import spending was US$20.59 billion, up 64% year-on-year while the export turnover only reached US$13.1 billion, rising 23.7% yoy. Therefore, the amount of US dollar that banks had to lend importers was very much while not many exporters send money at banks because of low export value.

Some banks stressed that, they during the last months have restricted US dollar lending but still had to meet payment demand of foreign partners, especially import contracts Vietnamese firms signed previously.

Another reason is for the difference between deposit rate and lending rate in both dong and US dollar in Vietnam is large. For example, US$1 million was converted into 15.850 billion dong on February 24. The sum of the dong sent to a bank with a term of one-month will carry an interest rate of 14.2% per annum. Up to the due date of March 24, 3008, the total principal and interest is 16.037 billion dong. If buying back US$1 million for capital adequacy purpose, with the forex rate of 15,850 dong/US dollar on March 24, that depositor will earn 187 million dong profit. And if sending straight US$1 million at a bank under the one-month US dollar deposit with the interest rate of 4.5% per annum, the profit will be US$3,750 or 59.1 million dong only. Similarly, regarding lending rate, borrowing US dollar is more beneficial than the dong especially in the current context that the dong interest rate stands high.

All aforementioned reasons urged a slew of residents to withdraw US dollar savings to take the dong and then send back to banks. Meanwhile, enterprises want to borrow loans in US dollar.

Therefore, Vietnam Banks Association currently has paid much attention to the situation and pledged to consider and seek members' opinion to offer a new ceiling US dollar rate in a bid to avoid a deposit rate race among banks.