According to the National Financial Supervisory Commission (NFSC), by the end of April 2018, the capital mobilisation from economic organisations and individuals increased 3.5 percent from the end of 2017 (2.8 percent), of which, the mobilisation of dong swelled 3.7 percent while the mobilisation of foreign currencies decreased 3.1 percent.
Also at the end of April 2018, credit in dong was estimated to improve 4.1 percent, accounting for 91.9 percent of the total credit, while foreign currency credit hiked 6.3 percent, making up 8.1 percent of the total credit (compared to 7.9 percent at the end of 2017).
At the end of Q1/2018, Vietcombank had positive deposit growth, with 0.5 percent from the beginning of the year, reaching 134.9 trillion dong, equal to 18.5 percent of the mobilised capital. However, lending in dong only inched up 5.3 percent from the beginning of the year, accounting for 82.3 percent of the total outstanding loans, while lending in US dollars and other foreign currencies surged 11.5 percent from the beginning of the year, reckoning for 16.8 percent of the total oustanding loans.
Apart from Vietcombank, the foreign currency increase right in the first quarter of 2018 also took place in many other banks. For example, at LienVietPostBank, the deposits in US dollar fell 14.01 percent, but lending increased as much as 17.8 percent from the beginning of the year, touching 5.9 trillion dong.
ACB had the deposits in US dollar to go down 8.99 percent, while lending swelled 8.19 percent, hitting 9.570 trillion dong. BIDV’s deposits in US dollars also lessened 6.05 percent, while lending in US dollar developed 4.01 percent, touching 96.790 trillion dong.
The reason for the increase in foreign currencies is because businesses are interested in foreign currency loans when foreign currency lending rates are significantly lower than lending rates in dong. Specifically, for dong, short-term lending rates were popularly 6-9 percent/annum while compared to US dollars, short-term lending rates were 2.8-4.7 percent/annum, compared to 4.5-6 percent/annum for medium and long-term lending rates.
According to experts, low foreign currency lending rates help businesses access cheap capital sources but there needs to be prudent with the strongly growing trend of foreign currency credit, especially when the value of US dollar is rising after the recent move of the US Federal Reserve (Fed) in raising interest rates by 0.25 percentage points to 1.75-2 percent/annum and the interest rate is expected to continue going up two more times in this year, putting pressure on US dollar/dong exchange rate.
Fed is sticking to its previously announced interest rate increase roadmap and the US government bonds yields have significantly increased over the last period and have been pushing up the US dollar. Therefore, the pressure from fluctuations in the world market for US dollar/dong exchange rate is difficult to be avoided. In order for business operations to stabilise and be effective, businesses need to be active in preventing exchange rate risks and interest rates in order to avoid shocks when the market has fluctuations.
Financial expert Huynh Trung Minh said the strong increase of the US dollar will affect businesses that are borrowing in US dollars, especially those that are borrowing US dollars at floating interest rates.
“At that time, capital costs will increase, and businesses may face difficulties in liquidity. Therefore, businesses should negotiate to change US dollar lending rates from floating to fixing. Normally, exchange rate often increases at the end of the year, when the payment to foreign partners is due. Therefore, businesses need to be active in preventing exchange rate risks (hedging) via foreign currency purchase under future contract. In other words, this is a kind of exchange rate fluctuation insurance for businesses”, recommended Minh.
For management agency, Nguyen Hoang Minh, deputy director of the State Bank of Vietnam (SBV)’s Hochiminh City branch said in the medium and long term, one of the targets of the State Bank is to prevent the dollarisation in the economy. Recently, the State Bank has had several renewals of foreign currency loans in order to support the economic development in the short term when lending rates in foreign currency are low. However, terms of foreign currency loans are mainly short in order to meet the demand for collecting materials for production of exports of businesses, so the safety in the correlation between domestic and foreign currencies is still assured.
Talking with the local Newswire Dau Tu Chung Khoan, a senior leader in the banking sector said the policy of the State Bank in the near future is to continue selecting foreign currency borrowers, although it still extends terms of foreign currency loans. At the same time, deposit rate in US dollars is still maintained at zero percent per year to prevent the dollarisation.
