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SBV to take actions to put a break on dollar credit growth
The State Bank of Vietnam (SBV) has said it keeps a close watch over the sharp increases in the dollar outstanding loans and it is going to take necessary measures to avoid chaos in the market.
VnExpress has quoted its source from SBV as saying “that the watchdog agency is keeping a close watch over the market and that the agency would soon take actions to ease the demand for foreign currency loans after it collects necessary figures from commercial banks.”
A lot of experts have voiced their concerns about the overly hot foreign currency credit growth in the last few months.
The information may help reassure people who have been waiting for the official statement from the State Bank about the measures to intervene the market. The watchdog agency keeps quiet about the measures, while economists have continuously warned about the possible dong/dollar exchange rate instability by the end of the year.
A report by the State Bank has pointed out that the outstanding loans by early June had increased by 22.21 percent from the beginning of the year, while dong outstanding loans had increased by 2.72 percent only.
The increasingly high demand for foreign currency loans has forced commercial banks to raise deposit interest rates to attract more capital. By early June 2011, the mobilized capital in foreign currencies had increased by 8.89 percent, while dong capital had increased by 1.15 percent only.
The increasingly high demand for foreign currency loans has been attributed to the attractive interest rates which are much lower than the interest rates of dong loans.
Meanwhile, businesses feel secure about the loans because they cannot see any signs showing that the dollar prices would increase in the time to come. Therefore, it would be better for them to borrow dollars and sell dollars for dong to maintain business.
The source from the State Bank admitted that it is not easy to cool down the overheating foreign currency lending with the tools of interest rate or exchange rate adjustment, even though the watchdog agency knows well that the big gap between the dong and the dollar loans is the main reason behind the problem.
At present, a cap has been put on dollar deposit interest rates, which makes it unable to raise the dollar lending interest rates and narrow the gap between the dong and the dollar interest rates.
It is also not advisable to adjust the dong/dollar exchange rate, because stabilizing the exchange rate to curb inflation is now the top priority task for Vietnam.
“However, the State Bank of Vietnam would find out the solutions to the problem soon,” the source said.
In order to encourage businesses to sell dollars to banks instead of keeping on their accounts, the State Bank has decided that the ceiling dollar deposit interest rates are two percent applied to individuals and 0.5 percent to institutions.
In fact, banks are paying 4 percent, or two percent higher than the ceiling level, for dollar deposits. Therefore, the dollar loans would have the interest rate of 10 percent at the highest, which is still much lower than the dong rates at 20-22 percent per annum.
Dau tu has quoted Dr Pham Tien Dat from the Banking Academy, as saying that “the dollar credit increases should be seen as a kind of the finance dollarization, because the assets and debts in the local currency have been replaced with the assets and debts in dollar.”
He has warned that with the dollar outstanding loans increasing, many problems have arisen that need to be settled.
The dollar credit increases have been attributed to the tightened dong lending policy and high dong interest rates. If the State Bank pumps dong into circulation to take back dollars from circulation, the inflation would become more serious. Meanwhile, if the State Bank wants to withdraw dong from circulation, it would have to sell valuable certificates (Bonds, notes) to credit institutions. The circle would result in the more serious dong credit access inability.
vietnamnet
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