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Dong loans expensive, businesses rush to borrow dollars
The large gap between the dong and the dollar loan interest rates has prompted businesses to borrow in dollars instead of dong. This explains why the outstanding loans in dollars in the first six months of the year are higher by 10 times than the dong loans, and by 2.5 times than the mobilized capital in dollars.
It’s cheaper by 1/3 to borrow dollars than dong
Nguyen Thi Doan, General Director of the Hoang Duong Consultancy and International Trade Company, which specializes in trading mechanical engineering products for agricultural production, said that it is now clearly cheaper to borrow dollars than dong.
According to Doan, if borrowing three billion dong in dong, her business has to pay the interests of 60 million dong a month. Meanwhile, if she borrows the same sum of money in dollars and then convert into dong, she would have to pay the interests of 900 dollars a month, or 19 million dong only.
Other businessmen also think this way, which explains why the dollar outstanding loans have increased by 22.21 percent, or 2.4 times higher than the mobilized capital, while the dong credit has increased by 2.72 percent only.
As the demand for dollar loans is overly high in comparison with the capital mobilization capability, banks have to offer high interest rates to attract deposits. The State Bank of Vietnam has set up a cap on the deposit dollar interest rates. However, in fact, commercial banks have to pay the interest rates much higher than the ceiling rate of two percent per annum.
General Director of a joint stock bank in HCM City said that the actual demand for dollar loans is much higher than the reported figure. However, businesses still find it difficult to borrow dollars because of the strict regulations as requested by the State Bank.
The banker said that in many cases, businesses try to dodge the laws to borrow dollars, while banks keep a “deaf ear” in the cases, because banks themselves want to lend in dollars. They do not have much dong to lend, while they really want to increase the foreign currency outstanding loans.
The interbank dollar interest rates have also increased. A report released by the State Bank of Vietnam showed that the interest rates of 1 week – 3 month term loans on the market have increased by 0.01-0.75 percent, while the sharpest interest rate increases have been applied to 3-month term loans, from 1.71 o 2.46 percent per annum.
However, the overnight and 6-month term dollar interest rates on the market have decreased by 0.05 percent and 0.35 percent, respectively.
Currently, the dollar lending interest rates are mainly between 6-7.5 percent for short term loans and 7.5-8 percent for medium and long term loans.
Experts warn harder pressure on the foreign currency market
The large gap between the dong and the dollar interest rates has brought the desired effects-people have been selling dollars for dong to deposit at the banks, thus helping ease the dollarization.
However, Pham The Anh, Lecturer of the Hanoi National Economics University has pointed out that it is the big gap which has encouraged businesses to borrow in dollars, especially in short and medium terms.
The overly high growth rate of the foreign currency credit in the first six months of the year has made Anh raise a question about the capability to control the foreign currency lending. He said that the big profits in borrowing dollars will force businesses to dodge the laws in order to access dollar loans.
He went on to say that the businesses which are holding dollars, would like selling foreign currencies to banks in order to exchange for the right to borrow in dollars, because of the big benefits.
Deputy Chair of the National Finance Supervision Council, Le Xuan Nghia has expressed his worry that businesses would rush to purchase dollars one day to pay bank debts, which may cause the dollar temporary shortage on the foreign currency market.
Nghia said that the State Bank should narrow the interest rate gaps of the two
currencies. Meanwhile, in the long term, it is necessary to reduce the inflation which allows to lower the dong interest rates and control the trade deficit to ensure the profuse supply of the dollar.
vietnamnet, SGTT
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