Firms find devalued dong lowers lending risks, limits dollars

After the State Bank of Vietnam (SBV) devalued the dong by 2.1 percent on August 19, loans in both Vietnam dong and foreign currencies have the same levels of short-term risk for businesses. However, the short supply of foreign currencies and SBV efforts to curb the trade deficit will make it difficult for businesses to access loans in dollars.

Dinh The Hien, a financial expert, noted that in the first half of 2010, when the dong interest rate was too high, the dollar interest rate was low and the dong/dollar exchange rate was stable. Then it was clearly more profitable to borrow dollars than dong. Now the situation is quite different, as loans in both dong and foreign currencies have the same level of risk because dong loan interest rates have been decreasing, while the dong/dollar exchange rate will remain unchanged from now to the end of the year.

Tran Hoang Ngan, Deputy President of HCM City Economics University and Member of the National Advisory Council for Finance and Monetary Policies, explained that SBV has requested commercial banks to restrict foreign currency loans to curb the trade deficit. He does not think that every business can access loans in dollars.

General Director of Viet A Bank Pham Duy Hung agrees with Ngan. Hung observed that, currently, his bank is prioritizing dollar loans to export companies that have earnings in foreign currencies, while the bank has restricted lending to other subjects.

Some big commercial banks, including Asia Commercial Bank (ACB) and Eximbank, have recently raised dollar deposit interest rates to 4.45 percent at highest, which shows the volume of capital mobilized by banks is not enough to satisfy the demand for capital.

According to the SBV HCM City Branch, in the first seven months, commercial banks’ outstanding loans in foreign currencies grew by 28.8 percent, while mobilized capital in foreign currencies increased by only 5.1 percent.

Meanwhile, according to figures released by the National Finance Supervision Council and reported by the media, outstanding loans in foreign currencies of the banking system has exceeded mobilized capital in foreign currencies by 40,000 billion dong, or $2.05 billion. As such, it is not probable to expect high growth rates in foreign currency credit in the last months of 2010.

Financial experts say that export companies can borrow in foreign currencies, because they have income in foreign currencies, and exchange rate fluctuations will not be a big problem. Meanwhile, enterprises without foreign currency income have been advised to borrow in dong, especially as commercial banks are trying to ease lending interest rates and offering promotions.

In fact, commercial banks have been trying to expand credit to obtain a credit growth rate of 25 percent this year. After the first seven months, credit growth remains modest at not quite 13 percent.

ACB has announced that it would reserve three trillion dong to lend to small and medium enterprises at preferential interest rates, just equal to 80 percent of normal rates. Meanwhile, An Binh Bank will lend without requiring collateral.

Regarding the dong/dollar exchange rate, Bloomberg has reported that the dong lost five percent of its value since the beginning of 2010, becoming the currency with the sharpest price decrease among the 17 the newswire covers in Asia.

Meanwhile, the Wall Street Journal has quoted two famous analysts from Nomura Bank as saying that, with the current high trade deficit, Vietnam may have to consider devaluing the dong further. – TBKTVN

Tags: US dollars, Vietnam finance, Vietnam financial