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Banks able to get VND – but at what cost?
The State Bank of Vietnam has announced that it will allow commercial banks to carry out foreign currency swap operations, but not free of charge as previously planned. The fee has been set at 15%.
Two weeks ago, the State Bank of Vietnam agreed in principle on allowing several commercial banks to use an absolutely new mechanism to access capital from the State Bank: swapping foreign currencies they have for VND.
The mechanism clearly overjoyed banks as it would have enabled them to get VND at low cost.
Banks would have been able to mobilise capital at low interest rates. Instead of paying 16-18% for mobilising VND capital, banks would only have had to pay 6-8% to mobilise US$, while still being able to lend at 21% per annum.
Banks that had problems in liquidity would have been able to “sell’ dollars to the State Bank to get VND with no fees to pay to the State Bank. Of course, the banks would have had the right to buy back the dollars to pay clients, when the clients wanted to withdraw money.
However, after the State Bank reconsidered the issue, it decided to provide swap operations at a high fee, at 15%.
This means that banks can bring dollars to the State Bank of Vietnam and use the dollars as collateral to borrow money from the State Bank of Vietnam at the interest rate of 15%.
The high fee of 15% has been irking commercial backs. If banks have to pay 15% in fee and 6-8% for mobilising dollars, the total capital cost could be as high as 20%, a level which cannot ensure profit for banks.
Explaining the 15% fee, an official of the State Bank of Vietnam said that as the central bank is pursuing the tightening monetary policies, banks need to control their capital resources themselves, and that the swap operations should be used only when banks really have difficulties in liquidity.
In fact, the swap operation is not a new service at all, because it is always used on traditional Tet. At that time, when the demand for VND increases sharply to satisfy shopping needs, banks always take dollars to the central bank to swap for VND. After Tet, when the demand for VND returns to normal, banks take VND to the central bank and get back their dollars.
Analysts say that with the high fee of 15%, only state-owned banks will have be able to employ the swap operation, as they have advantages in mobilising capital in dollars at low interest rates.
The leader of a state-owned bank revealed that it has registered to swap $200mil. The director said that the bank’s average US$ capital mobilisation interest rate is at 3%, which means that the total capital cost would be 18%, still acceptable for the bank.
VNN
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