US dollar lending back in fashion

For example, Ut Xi Seafood Processing Joint Stock Company’s deputy general director Nguyen Tuan Anh said the firm sourced dollar loans from state-owned Agribank with a 4 per cent, per year interest rate. “If we had dong lending, the negotiable interest rates might be 20-22 per cent per year,” Anh said.

High dong lending rates made scores of firms to turn to using dollars.

Banks have also been eager to meet demand as dong loan demand drops.

Ho Chi Minh City State Bank branch statistics show that city-based banks took VND819 trillion ($3.95 billion) in deposits by late June 2011, up 1.58 per cent against late 2010. Lending amount also hiked considerably 6.67 per cent in the first six months against late 2010. Particularly, dong lending surged 2.14 per cent and dollar lending soared 18.7 per cent.

The State Bank reportedly bought in $4 billion this year to consolidate national foreign currency reserves.

A top executive of a Ho Chi Minh City-based commercial joint stock bank said dollar lending still showed no sign of sliding.

“Since the [dong-dollar] exchange rate is forecast to remain stable until late 2011 and the dong lending rate yet to be eased, importers still prefer to using dollar loans for payment purposes,” he said.

In this context, head of Ho Chi Minh City University of Banking’s Business Management Faculty Dr. Le Tham Duong assumed the on-going practice would pressurise the dollar supply by the year’s end when many dollar-denominated credit contracts came due.

“When sourcing dollar loans, firms need to adopt precautionary measures to soften exchange rate risk, especially by the year’s end when trade deficit often escalates though the current exchange rate is relatively stable,” Duong said.

Current dong lending rates to some areas:

Production and trading activities: 20-22 per cent per year

Non-productive sectors: 23-25 per cent per year

Dollar lending:

Short-term loans: 6-7.5 per cent per year

Medium and long-term loans: 7.5-8 per cent per year.

(Source: Ho Chi Minh City commercial joint stock bank statistics)