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Dong loan demand seen weakening on high interest rates
Demand for dong loans is expected to decline in the next three months as businesses and consumers, strained by record high interest rates, start to cut back on spending, bankers have said.
“Companies with good performance on average can make only 20 – 30 percent earnings before interest and taxes, so few can afford to pay 21 percent in interest to the banks,” an analyst at Habubank in Hanoi said.
“We are seeing a declining trend in new dong loans in the next three months as companies and consumers are forced to delay new projects or purchases,” he added.
Most banks this week are charging 21 percent interest on dong loans, the ceiling rate regulated by the central bank, after it raised the base rate for the dong three times, taking it to 14 percent as from June 11.
The base rate is used by banks to calculate dong loans and deposit rates.
“Some banks have to pay as much as 19 percent per year to raise dong funds from deposits so they have to charge more to stay in business,” one banker at a foreign bank in Hanoi said.
The central bank said in a weekly market report that most banks were now offering 17-18 percent for dong deposits.
Outstanding bank loans in Vietnam were likely to be 20 percent higher at the end of the first half than a year earlier, but monthly loan growth would slow to 1.22 percent in June, according to a central bank report.
The central bank, or the State Bank of Vietnam, did not give the credit growth for the first half of 2007 but loans surged 54 percent in the whole of 2007, so the 20 percent growth so far this year shows a dramatic fall after three rate increases since January by the central bank.
The dong rose 0.1 percent to 16,603.00 Tuesday from 16,614.00 close Monday, according to data compiled by Bloomberg.
The State Bank of Vietnam set a rate of 16,451 a dollar, compared with 16,452 Monday according to its website.
The currency is allowed to trade up to 1 percent on either side of that rate.
The dollar has gained nearly 20 percent over the past three months on the unofficial market, such as in gold shops, where residents buy and sell foreign currencies, as concerns rose over the government’s ability to cope with a record high trade deficit and double-digit inflation at 25.2 percent last month.
Vietnam estimated its trade deficit would more than triple to $16.9 billion in the first half of this year as imports soar 64 percent.
The central bank weekly report said the bank would continue this week to “undertake measures to stabilize the foreign exchange market.”
The dong has now fallen 2.04 percent against the dollar since the end of 2007.
The government’s stated policy is to allow the dong to rise or fall by up to 2 percent against the dollar in the whole of 2008.
Thanhnien
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