Banking system now awash with greenbacks flowing in banking system

Sizable amounts of greenbacks are finding their ways back into the banking system to ease US dollar shortage concerns.

“I think the foreign currency demand-supply balance will be maintained in 2010, especially after recent moves to encourage corporate dollar depositors to sell their holdings,” said Vo Thi Sanh, vice head of BIDV’s Treasury Department.

BIDVBIDV Viet Nam

In mid-February, the State Bank raised its mid-point reference rate by 3.44 per cent to VND18,544 per dollar. On the other hand, it capped dollar deposit rates at 1 per cent, per year. “In fact, BIDV’s corporate depositors have started selling their dollar holdings to enjoy much higher interest rates for Vietnamese dong deposits at around 11-12 per cent, per year,” said Sanh.

The State Bank’s decision to adjust the exchange rate has led to changes in commercial banks’ quotes. By end of last week, commercial banks quoted the same sales prices at VND19,100 per dollar. However, purchasing prices were different. Vietcombank purchased at VND18,800 per dollar, Eximbank at VND18,990-19,000, Asia Commercial Bank at VND19,050 and EAB at VND19,000.

Nguyen Thanh Toai, deputy general director of Asia Commercial Bank (ACB), said when banks could set buying exchange rates lower than selling rates, it meant the banking system’s dollar supply levels had improved. For months before February, 2010, local banks set equal buying and selling exchange rates.

“In cases of a dollar shortage, banks must sacrifice profits to source enough dollars for customers,” Sanh said. An important source of dollars is the government’s international bond sales earlier this year. A Vietinbank source said approximately $1 billion from international bond sales had been remitted to Vietnam via his bank.

“Now this amount has been sent to the State Bank’s coffers. Banking system dollar supply levels are adequate to cover all demands,” said the Vietinbank source. On another front, an improved trade deficit would not only prevent a foreign currency shortage in 2010, but also allay foreign portfolio investors’ concerns.

According to the General Statistics Office, the trade deficit in February saw a 15 per cent reduction against January. The shortfall in February was just $800 million, continuing a narrowing trend from over $2 billion in November, $1.9 billion in December and $945 million in January, 2010.

Nguyen Thi Kim Thanh, head of the Banking Development Institute, said improved dollar supplies would also attract foreign portfolio investors. “Last year, foreign investors turned their backs on Vietnam’s bond market partly due to concerns about the country’s inadequate dollar supplies,” said Thanh.

In Vietnam, foreign portfolio investors have to exchange dollars for dong to invest in bonds or securities. When investors leave Vietnam, they must exchange sums back into dollars. Thus, any signs of a dollar shortage in the economy could discourage them from investing into Vietnam.

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Posted by VBN on Mar 8 2010. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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