Banks told to raise foreign currency reserves

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Under a decision effective on Aug. 31, the new ratio applies to non-term deposits and term deposits of less than 12 months at state-owned banks (excluding Agribank), private commercial banks, and foreign-invested banks, joint ventures or branches of foreign banks in Vietnam.

The compulsory reserves ratio for term deposits in excess of 12 months was also increased from 5 to 6 per cent of these deposits.

At Agribank, central credit unions and co-operatives, the reserves ratio for non-term deposits and term deposits of less than 12 months was increased from 6 to 7 per cent, while the ratio for longer term deposits at these institutions was raised from 4 to 5 per cent of total deposits.

According to State Bank statistics, credit in foreign currencies grew 22.1 per cent in the first half of the year, tripling the 7-per-cent rate of growth in loans made in Vietnamese dong.

The disparity was encouraged by the enormous gap in average lending interest rates between loans in dong, which averaged an interest rate of 18.74 per cent per year, and loans in US dollars, which averaged only 6.4 per cent during the period.

During July and August, borrowing costs for the dong remained high, at 16.5-25 per cent, while interest rates on dollar loans continued to average 6-8 per cent.

The State Bank's latest decision follows a move to cap deposit interest rates paid on US dollar deposits at just 2 per cent.

To further shore up confidence in the domestic currency, State Bank Governor Nguyen Van Binh on August 29 also reaffirmed that the value of the Vietnamese dong would not be depreciated against the US dollar by more than 1 per cent over the next four months.

Binh said that projection was reasonable since the international balance of payments was expected to achieve a surplus of $2.5-4.5 billion during the period.