Vietnam money-more Dollar sales seen on Cbank measures-bankers

Vietnamese companies and individuals may step up their dollar sales to banks in coming weeks after the central bank capped the rate on dollar deposits and increased foreign exchange requirements for lenders, economists and bankers said.

While, the sales are expected to ease the pressure on the dong , a senior government advisor said the State Bank of Vietnam may yet need to take further steps to decrease the exchange rate risk for people holding dong.

The gap between dollar deposit and lending rates will widen as banks cut deposit rates to comply with the central bank’s cap while loan rates may rise on higher capital costs, Cao Sy Kiem, a member of the National Financial and Monetary Policies Advisory Council told Reuters.

“Businesses and people will soon find that depositing dollars is not as beneficial as before, so they may sell more dollars,” he said.

The State Bank, Vietnam’s central bank, has capped dollar deposit rates at 3 % for individuals from April 13 and said it will raise the dollar reserve requirements by 2 %age points from May.

Banks have been offering dollar deposit rates at around 5 % to 5.5 %. The new cap on dollar deposit rates for businesses is now 1 %.

In comparison, a dong deposit now earns between 16 % and 18 %, despite a central bank cap of 14 %.

Those who anticipate a stable foreign exchange rate may sell dollars for dong, and deposit the local currency in banks for a higher interest rate, the Saigon Tiep Thi newspaper quoted Truong Van Phuoc, chief executive officer of Vietnam Export-Import Commercial Joint-stock Bank (Eximbank), as saying.

Exporters have pushed up dollar loans to banks in the past few days in anticipation of the central bank’s measures, announced on Saturday, to curb their holding of the U.S. currency, the Vietnam News Agency has reported.

However, Kiem, the government advisor, said these measures alone cannot push businesses and people to sell their dollars to banks and the central bank needs to show its commitment to a steady foreign exchange rate and to allow termed dollar trading.

“These measures need to go with a set of policies to ensure the stability of the foreign exchange market and prevent foreign exchange risks,” he said.

The central bank is expected to submit to the government an anti-dollarisation plan for approval this month, bankers said.

Its latest moves will also ease pressure on banks in meeting dollar loan demand, said a treasury manager at a Hanoi-based bank.

“The gap between dollar and dong lending rates will also narrow, which will discourage businesses and people to get dollar loans,” she said.

Dollar loans in the Vietnamese banking system is estimated to have soared 12.06 % in the first quarter this year from the end of 2010 while dong lending rose just 1.43 %, the central bank said in a report – Reuters

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial