Banks are becoming net purchasers of foreign currencies, creating a good base for the forex market despite exporters’ increased demand for foreign currencies at the year-end.
US dollars are increasingly becoming hot property for banks
Based on State Bank data, in the final week of September and the first week of October, the exchange rate moved slightly upward as credit institutions actively bought foreign currencies to meet customers’ demand. At the beginning of October, the exchange rate fluctuated round VND20,870-20,910 per dollar, higher than figures at the end of September of VND20,860-20,900 per dollar. Experts believed the buying trend would continue in the coming weeks.
According to Nguyen Hoang Minh, deputy director of the State Bank’s Ho Chi Minh City branch, banks were in good forex positions, as supply was more abundant than previously. Banks’ supply could meet the demands of customers’ different purposes, he said.
There is no sign of distress in banks’ forex transactions and banks have not used up the entire exchange rate pricing limit. Figures from the State Bank’s Ho Chi Minh City branch showed that in the third quarter, the foreign currencies demand for goods and services payment increased sharply against the beginning of this year. Total foreign currencies sold to economic institutions in the third quarter hit $13.74 billion, and to individuals is $489 million. “The VND dominated interest rate is higher than the USD one. It is the reason why many people sell foreign currencies to deposit in VND to earn higher deposit rates. Also, the remittances often flow into Vietnam more strongly in the fourth quarter,” said Minh.
Moreover, the gap between the exchange rate on the official market and parallel market has made people more interested in selling foreign currencies to banks. With the State Bank’s determination to keep the forex market stable this year, the foreign currencies speculation and demand also decreased.
Trinh Hoai Nam, deputy director of DongA Money Transfer Company, said remittance receivers in previous years preferred to hold foreign currencies or sell to the black market, but the State Bank’s commitment to stabilise forex market made people want to trade directly at banks.
“This helps forex transactions in banks become more active. Banks are trying to reduce the gap between exchange rate on official and unofficial markets,” said Nam.
The exchange rate on the unofficial market at the end of last week was listed at VND20,860-20,880 per dollar. Meanwhile, the exchange rate listed by Vietcombank, a leader in forex transactions, was VND20,820-20,880 per dollar.
Although the forex market recently had some slight change due the fluctuation in gold market, the macro economy is also supporting the stability of domestic currencies. The remittance volume is expected to reach $10-11 billion this year, and in the first nine months, Vietnam has enjoyed a trade surplus of $34 million.
Asian Development Bank in a recent report on Vietnam’s economy stated that “the Vietnam capital inflows and the stable exchange rate enabled the central bank to increase foreign reserves to a level sufficient to cover an estimated 2.4 months of imports.”