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Dollar surplus as dong loans find more takers
Commercial banks now have a surplus of US dollars as businesses prefer to borrow dong-dominated subsidy loans to benefit from both lower interest rates and protection from foreign exchange fluctuations, bankers said.
Bui Thi Mai, general director of Hanoi-based Habubank, said, “We find it hard to attract customers to dollar-dominated loans as most of them are obsessed with the foreign exchange fluctuations.”
The central bank widened the trading band for the dong to 5 percent from 3 percent on March 24, allowing the currency to slide further from its daily reference rate against the dollar.
Enterprises also find it more attractive to borrow in the local currency since the government launched a 4-percent interest subsidy program in February to stimulate the economy.
More than VND202 trillion (US$11.4 billion) has been lent under the program, the government said on its website last week.
Only companies that import equipment or materials and those who need dollars to clear their debts borrow the greenback, bankers said.
Dau Tu (Investment) newspaper quoted Nguyen Phuoc Thanh, general director of Vietcombank, as saying dollar deposits are increasing but credit is shrinking.
The deposits rose 3.6 percent in the first quarter and lending dropped 2.24 percent, according to the central bank.
Bankers also said a recent move by the central bank to cut the interest rate it pays on additional, compulsory foreign-currency reserves from 0.5 percent to 0.1 percent has had a ”significant effect” on them.
A deputy general director of a HCMC -based lender, who wished not to be named, told Dau Tu that his bank plans to withdraw the surplus compulsory reserves and cut the interest rates on dollar deposits, now at 0.5-3.2 percent, in the coming months.
Duong Thu Huong, general secretary of the Vietnam Banks Association, suggested that banks should buy dollar-dominated government bonds to get rid of the surplus dollars.
Bonds, dong fall
Government bonds on Wednesday gained for the first time in three days and the local currency declined on speculation the central bank will reduce the benchmark interest rate to bolster the economy.
“Investors have been talking a lot about another rate cut by the central bank in the near future and that rumor has trimmed down both bond yields and the dong,” said Nghiem Ngoc Minh, Hanoi-based head of the Capital-Management Department at the Bank for Agriculture and Rural Development.
The yield on the benchmark five-year note slipped 0.08 percent to 9.19 percent in Hanoi, according to a daily fixing price from 10 banks compiled by Bloomberg.
“A lower interest rate will deter people from holding dong,” Minh said.
“Supply of the dong has increased and will continue to rise in the second quarter since banks have been lending more dong to companies under the state subsidy program.”
The dong weakened 0.2 percent to VND17,783.50 to the dollar, according to prices from banks compiled by Bloomberg.
The currency also slid in the so-called black market, with the exchange rate at moneychangers in Hanoi at VND17,880 to VND17,910 per dollar, compared with VND17,870 to VND17,890 Thursday, according to telephone directory information service 1080.
Hoang Ly
thanh nien, bloomberg
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