Forex risks start to loom large

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Dollar lending surged 25.7 per cent against a modest hike of over 3.7 per cent in dong lending in the first seven months of 2011, said National Financial Supervisory Committee deputy chairman Dr. Le Xuan Nghia.

Besides, the difference between dollar lending and deposits amounts hit VND85 trillion ($4.1 billion) in the first six months of 2011, more than double that in 2010’s same period.

Reality shows banks found it hard to hike dollar deposits as people tended to convert dollars into dong currency to deposit at banks for higher interest rates. Meanwhile, firms want to source dollar loans which are mostly short-term. When their dollar-based debts came due at the year’s end, it would threaten the exchange rate.

The State Bank bought $4.8 billion to consolidate national foreign currency reserves as of July 20, 2011, according to National Assembly Economic Committee chairman Nguyen Van Giau.

Giau, however, said the greenbacks would face growing pressures on the back of declining inward remittances and foreign portfolio capital volumes, while the trade deficit still remains high.

In fact, inward capital flows shed from $2.4 billion in the first quarter to just $1.9 billion in the second quarter and meagerly $0.66 billion worth in foreign portfolio capital came to Vietnam in the first seven months of 2011 against 2010’s $1.79 billion.

Echoing the idea, VietinBank South Thang Long branch office director Pham Xuan Hoe said the exchange rate could rattle in 2011’s later months.

Banks also assumed the exchange rate might face pressure by the year’s end unless central bank took timely and effective interventions since dollar lending has remained strong.

According to newly-elected National Financial Supervisory Committee chairman Vu Viet Ngoan, the demand for dollars would soar in late 2011 as firms rushed for dollar loans.

“The State Bank and commercial banks hold responsibilities for ensuring the dollar supply-demand balance both in the short and long term to circumvent shaky dong-dollar exchange rate later of the year,” said Ngoan.

Reality shows that in early August 2011 most banks took steps to hike dollar deposit and lending rates. Dollar deposit rates were reportedly offered at 2.5-3.5 per cent, per year against central bank’s regulated ceiling 2 per cent per year while lending rates stood at 7-8 per cent, per year.