SBV shouldn’t make further reduction on forex rate: VBA

According to banks, recently the forex rate has seen positive evolutions, although foreign currency credit growth is quite hot. That is worrisome for the future, it may also affect the country’s trade deficit. In addition, the difference between lending and mobilisation of foreign currency will lead to difficulties for banks in the future. Therefore, the State Bank of Vietnam (SBV) should not make further reduction on the forex rate. Vietnam Bank Association (VBA) has recently sent document to the central bank on this issue.

Many experts said in the current situation, the central bank should not put rigidly the credit growth cap of 20 percent for all banks. Because, except some small banks have used most of their credit growth target, many other lenders still have big capital sources to disburse in business and production sectors.
Many exporters are facing difficulty in accessing capital.

Vietnam Commercial Joint Stock Bank for Industry and Trade (VietinBank-CTG) will send a document to the prime minister and the central bank proposing to enlarge the credit growth to 30 percent in 2011 and this entire capital source will be disbursed into production and business sectors and key projects, Pham Huy Hung, chair of VietinBank’s director board, said.

Interest rate will decrease gradually.

Hung said in the first six months of this year, VietinBank’s credit growth has reached only 9 percent and most of the money was given to sectors such as post and telecommunications, electricity, coal, minerals, export and agriculture and rural area with the very low lending rate of 19-20 percent per year, even at 18 percent per year for agriculture sector. During past time, VietinBank’s capital mobilisation from individuals has seen a satisfactory growth and therefore the bank has conditions to provide preferential loans for business, production and serve the economy.

Hung suggested in the current context, monetary policy should be marketable and the central bank should manage credit growth in the direction of credit for the whole economy at no higher than 20 percent, also depending on the conditions of each bank, the central bank should not put a cap of 20 percent credit growth on all banks.

According to general manager of a large bank, in the present context, flexible credit growth has very big effects in economic development, specially, when the inflation target was increased to 15 percent for this year. The central bank should create the output for the banks that have ample funds with low cost, thereby decreasing the lending rate.

In fact, many other banks although being allowed to increase outstanding loans by 20 percent they can not raise the capital so their credit stands still.

According to banks, during past time the forex rate has had positive evolutions, although foreign currency credit growth is quite hot. That is worrisome for the future, also affects the country’s trade deficit. In addition, the difference between lending and mobilisation of foreign currency will lead to difficulties for banks in the future. Therefore, the central bank should not make deeper reduction on the forex rate. Vietnam Bank Association (VBA) has recently sent document to the central bank on this issue.

The interbank average forex rate on June 11 dropped 5 dong to 20,618 dong/US dollar, marking the lowest level since the daily forex rate adjustment (February 11). In comparison with the highest level of 20,733 dong/US dollar on April 19, the interbank average forex rate slipped 115 dong/US dollar.

Trinh Van Tuan, CEO of Phuong Dong (Orient) Commercial JS Bank, said his bank would offer more loans to the production and business sector as the credit growth in the first five months of the year had just increased by 5 percent. The bank’s current lending rate has gone down to range between 20 percent and 21 percent per year.

Central bank keeps the deposit rate ceiling

At a meeting with the HCM City-based commercial banks held last week, the SBV’s governor Nguyen Van Giau also confirmed there would be no change in the deposit rate ceiling of 14 percent a year.

Le Tham Duong, head of the business administration department of the HCM City Banking University, said the central bank had made the right move by keeping the deposit cap in the current context when the consumer price index tended to decrease and the interbank lending rate ranged around 15 percent per year. So, the banks are forced to reduce their deposit rate, he said.

Otherwise, if the deposit rate ceiling is removed, some banks will hike the lending rate and also boost the deposit rate.
An economist said the cap helped achieving both targets of curbing inflation and supporting growth.

But the interest rate should be gradually reduced, as the too low rate would encourage customers and firms to borrow more loans, and thus boosting the credit growth, he said. – Tuoitre

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam forex market