Greenbacks get the love
29-APR-2008 Intellasia | Vietnam Investment Reviews page 15
Apr 29, 2008 - 7:00:00 AM
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Local companies are rushing to borrow dollars from commercial banks before the State Bank's regulation to tighten dollar lending takes effect.
According to an official from Bank for Investment and Development of Vietnam (Bidv)'s treasury department, demand for dollar credit has gone up sharply since the State Bank released Decision 09/2008/QD-NHNN on April 10. The decision came into effect on April 25, 2008.
"Borrowing in dollars is much cheaper than in dong. Companies are borrowing from banks even without a real need for foreign currency before it becomes more difficult to do so," said the Bidv official.
The lending rate in dong varies from around 18-20% while dollar rates are around 9-10%.
A source from Bank for Foreign Trade of Vietnam (Vietcombank) said that due to strong demand for dollar borrowing recently, the bank had to borrow dollars from other banks via the interbank market.
Nguyen Thanh Toai, Asia Commercial Bank's deputy general manager, estimated that over the last two weeks, the demand for' dollars increased by close to 30%.
According to a State Bank official, companies borrowing without need have been one factor which has forced authorities to tighten the regulation.
With Decision 09/2008/QD-NHNN, customers are now allowed to borrow dollars from commercial banks for three purposes instead of the previous eight: for importing goods and services, settling pre-mature foreign debt and investing overseas.
State Bank statistics show that since December 2007, credit growth in dollars has surpassed credit growth in dong. Over the first three months of 2008, credit growth in dollars hit almost 13%. The State Bank hopes that by tightening dollar lending, the economy's dollarisation will be easier to control.
The International Monetary Fund rates an economy with foreign currency deposits in excess of 30% as a dollarisation economy. Vietnam's ratio, after peaking at 41.2% in 1991due to hyper inflation, has been fluctuating between 20-30%.
In a dollarisation economy, controlling credit growth is more difficult.
The central bank's measures such as raising reserve requirements and issuing central bank notes to withdraw money from circulation are only effective in controlling local currency credit.
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