Banks put pressure on swap frameworks

July 14, 2008 | 18:10

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Currency swap frameworks revision could result from commercial bank pressure. Duong Thu Huong, Vietnam Banking Association’s (VNBA) general secretary, said deposits in foreign currencies, mostly in greenbacks, were on the rise while demand for dollar loans were on the wane.

The move would help regulate banks’ games of snakes and ladders

“Banks running short on dong while having a temporary surplus in dollar deposits should be allowed to swap dollars for dong. This would help local banks lower their lending rates and lessen the pain of local companies,” said Huong.

Over the first half of 2008, credit growth in foreign currency reached around 20 per cent. However, the State Bank said that in May and June, credit growth fell to nil, while growth in foreign currency deposits sat at around 9 per cent for April, May and June. Decision 893/2001/QD-NHNN was designed to assist local banks in severe need of dong and provide foreign banks’ branches a channel to convert greenback deposits into local currency.

A State Bank official said swap regulations were now no longer suitable to current market trends. “We are set to revise the regulation before putting swap operations back in to use.” A Vietcombank source said that foreign currency deposits should reach around $17 billion, “a sizeable amount that, if converted to the dong for short-term use, could provide local banks with another capital channel.”

Swap operations could be understood as a bank borrowing State Bank capital in local currency with its greenback deposits as collateral at a swap rate and should be understood as the interest rate that the bank has to pay to the authority. At the moment, the maximum rate is set at 1.5 per cent per year for the operations with the term of three months.

“The swap rate should be adjusted higher, in line with current interest rate levels,” said the State Bank source.
Financial experts said that local banks want swap operations to provide them with access to cheap capital.

By Vu Giang

vir.com.vn

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