Banks concerned US dollar supply not meet up demand

Many people converted their dollar deposits to dong after the state bank cut the greenback rate cap to support the local currency

Financial experts say many people converted their dollar deposits to dong after the state bank cut the greenback rate cap to support the local currency.

The State Bank of Vietnam lowered the rate cap on dollar deposits by individuals to 2 per cent from 3 per cent, and cut the limit for institutions to 0.5 per cent from 1 per cent, starting June 2. Banks have also been ordered to set aside more dollars as reserves.

Figures from the central bank show dollar deposit growth of commercial banks last month declined 3.6 per cent from May’s close and moved up slightly 9 per cent year-on-year.

Phan Thanh Hai, an official from GiaDinh Bank, says dollar depositors favor short- and unfixed-term deposits, while no one deposits their money in the bank for six months or more.

Dollar lending growth, however, rose 2.4 per cent from May’s close and sharply increased 23.5 per cent year-on-year.

Many lenders have even loaned an amount, which makes up 140-150 per cent of their total deposit. Others have paid dollar depositors interest rates on negotiable basis, which are higher than the government’s cap.

A Ho Chi Minh City-based bank offers depositors with short-term deposits worth more than $10,000 interest rates, which are higher than the cap by 1-1.5 per cent per annum, the director discloses to Dau Tu Tai Chinh Newspaper.

Interbank rates on dollar loans showed signs of slightly rising across the board last week, the central bank says in a report.

Overnight rate for interbank electronic payments edged up 0.16 per cent to 0.85 per cent per annum, while fixed rates ranged from 1.48 per cent per annum to 3.3 per cent per annum, according to the state bank.

Many banks say despite the slowing deposit growth, dollar lending demand of institutes remains very high as rate on dollar loans amounts to 6.5-8 per cent per annum, which is more attractive than dong lending rate of 18-22 per cent per annum.

Many businesses also favor greenback loans as they expect the dong-dollar exchange rate will be stable until the end of the year.

However, banks are encouraging dollar borrowers to convert their debt into the local currency in order to stabilize the greenback supply and demand.

Director of a joint-stock bank, who wishes to remain unnamed, says borrowers who want to convert their debts in dollar into dong will be offered a dong lending rate, which is lower than the common rate by 0.5-1.5 per cent per annum.

Banks also raised buy rate of dollar last week in an effort to meet up the increasing demand for the greenback of institute borrowers, whose debts are coming due.