Financial experts urge caution against dollar loans

Experts have warned enterprises to be more cautious with their US dollar loans amidst a significant rise in the lending and appreciation of the greenback.-Photo VIB

Statistics of commercial banks showed that despite a decline in dollar deposits, their dollar lending increased significantly in the first quarter of this year.

At BIDV, for example, dollar deposits in the first quarter of this year dropped by 6.05 per cent against early this year, while dollar loans rose by 4.01 per cent to US$4.24 billion (VND96.79 trillion).

The same move was seen at ACB, which posted an 8.99 per cent decline in dollar deposits but an 8.19 per cent rise in lending to $419.74 million (VND9.57 trillion) in the first quarter.

During this period, the foreign currency lending growth rate in some banks was even higher than 10 per cent.

MB reported a surge of 11.9 per cent in dollar loans to $1.05 billion (VND24.05 trillion) while the rate at LienVietPostBank even reached 17.08 per cent to $258.77 million (VND5.9 trillion).

In its economic and financial report in the first four months of this year, the National Financial Supervisory Commission noted that the country’s capital mobilisation rose by 3.5 per cent against December last year, of which dongdeposits increased by 3.7 per cent and US dollar deposits declined by 3.1 per cent.

During this period, credit growth in dong increased by 4.1 per cent against late last year, and the rising rate in the greenback lending was 6.3 per cent. The dollar loans accounted for 8.1 per cent of the country’s total outstanding loans, higher than the 7.9 per cent proportion in late 2017.

Currently, enterprises prefer to borrow foreign currency due to its low interest rates. The lending interest rates for short-term US dollar loans are now roughly 2.5 to four per cent, while the rates for short-term loans in dong are some seven to nine per cent.

Dollar appreciation

Financial experts, however, have warned enterprises to be more cautious about the low-cost capital source as the value of the dollar has been appreciating significantly against the dong and there are risks of more pressure on the US dollar/dong exchange rate from now until the end of the year due to the global market volatility and domestic inflation.

After being adjusted upwards consecutively since the beginning of this year, the central bank’s daily reference exchange rate rose by 0.8 per cent, from VND22,415 per dollar on December 31 last year to VND22,605 on May 29 this year. However, the rate of increase was much lower than the 2.6 per cent increase in the US Dollar Index in the world market.

Ngo Dang Khoa, head of global markets at HSBC Vietnam, told the Lao Dong (Labourer) newspaper that the global market’s pressure on the US dollar/dongexchange rate was hard to avoid due to a recent hike of the US government bonds and the US Fed’s interest rate hike plans.

Besides, some unexpectedly domestic factors, including rising dollar demands, trade deficit in May and low foreign indirect investment capital inflow in the first two weeks of May, caused the dong to sharply depreciate against the dollar last month. In May alone, the dollar appreciated by VND50 against the dong, the highest rising level to date this year.

However, the advantage of stable macroeconomic fundamentals and high foreign exchange reserves will help the central bank to actively manage the exchange rate policy flexibly and stably when needed, Khoa said.

To avoid shocks when the market is undergoing negative changes and to help firms do business stably and effectively, Khoa suggested that enterprises should actively use market products to prevent exchange rate and interest rate risks.

Earlier this year, the central bank decided to extend the foreign currency lending policy for certain exporters until the end of the year to continuously help local exporters increase their competitive edge and boost exports since their businesses and production continued to face difficulties. This is also among the government’s incentive policies aimed at supporting and developing local enterprises until 2020, which was approved in Decree 35/NQ-CP, issued in May 2016.