Dollar to lose its attraction

Domestic banks will adopt different approaches to absorb currency trends

Nguyen Dai Lai, vice head of the State Bank’s Banking Development Strategy, said the US Federal Reserve’s (FED) latest rate cut and the State Bank’s tightened regulations on dollar lending would reduce the rate of dollar mobilisation.
On October 31, the FED cut its benchmark interest rate by 0.25 per cent to 4.5 per cent, the second time since the beginning of the year.
A Bank for Foreign Trade of Vietnam (Vietcombank) Treasury Department official said the bank had foreseen the second FED cut and had moved to reduce its greenback mobilisation by 0.02 per cent on October 8.
However, according to Dao Hong Chau, deputy director general of Eximbank, domestic banks with different demands for the dollar would ultimately react in different ways.
“Eximbank has no plans to reduce its dollar mobilisation rate as our customers will need more dollars near the year’s end,” said Chau.
However, Lai said the State Bank was preparing to release a decision that would only allow greenback borrowing for three purposes: importing goods and services, investing in the manufacture and export of goods and services, and settling pre-mature foreign debt.
“The decision [if approved] will cut demand for the dollar and force local banks to reduce their mobilisation rate,” said Lai.
According to the State Bank, foreign currency credit growth in 2007 has hit nearly 37 per cent and the ratio of lent foreign currency /mobilised foreign currency has exceeded 90 per cent.
Lai said the high credit growth rate was partly due to enterprises’ tendency to borrow dollars at a low interest rate, as opposed to dong.
At present, the local lending rate for dong is around 12-14 per cent per year on average while the rate for dollars is just around 6-7 per cent per year.
“If the new regulation is approved, enterprises in need of dollars will have to buy them from local banks, easing pressure on them for dollar mobilisation,” said Lai.