Volatile FX rates shape up as big headache

Some exporters are hoarding greenbacks as a further dong depreciation is on the cards

The exchange rate volatility last week saw the  official and black market rate gap reach 650 points, reaching around VND20,150 per US dollar as of last Thursday, then only to drop  to VND20,050 the next day, October 22.

A Bank for Investment and Development of Vietnam (BIDV) source said the dollar demand for paying debts at pre-maturity would not pressurise US dollar supply.

“We saw debts originating in the beginning of this year maturing in the third quarter and enterprises already had to pay debts to narrow possible losses due to foreign exchange volatility,” said the BIDV official.

The Vietnamese dong has depreciated by 5.6 per cent from the beginning of this year. The difference between US dollar and dong credit interest rates is around 8 per cent.

“The devaluation of the dong and interest rate differences have not created debt payment strains on new debtors in recent few weeks,” said the BIDV official.

“However, local residents and exporters have hoarded dollars while keeping an eye on the central bank’s depreciation movements,” she added.

The State Bank’s Ho Chi Minh City branch figures showed that dollar buying volumes by local commercial banks was equal to selling volumes in the third quarter of this year. The total buying volume was around $16.2 billion, while the total selling volume was $16.3 billion.

According to the central bank, the total buying volume was $44.6 billion in the first nine months of this year, equal to 67 per cent of the total full-year volume in 2009. Meanwhile, the selling volume was reportedly $38.8 billion.

Among the total buying volumes by local commercial banks in the city, 47 per cent was from other credit institutions and 40 per cent from other economic sectors. The central bank was responsible for only 3 per cent of the commercial banks’ total buying volume.

Most trading volumes were conducted by large-scale joint stock commercial banks like Vietcombank and Vietinbank with 47.5 per cent of the total trading volume, foreign wholly incorporated banks with 46.8 per cent, joint stock banks with 3.4 per cent and state-owned commercial banks with 2.1 per cent.

Nguyen Hoang Minh, deputy director of the central bank’s Ho Chi Minh City branch, said trading volumes had showed strains in recent weeks as exporters were hoarding dollars due to fears the exchange rate would  climb in the near future.

“Exporters are also limiting their dollar sales to banks, affecting the dollar supply sources,” said Minh.

Meanwhile, dollar credit volumes went up in the city at 36.4 per cent in September against last month’s figure. The pace quadrupled the dong credit volume at the same time. The US dollar deposit growth rate was reportedly equal to around a third of dong deposit growth.

Foreign wholly incorporated banks’ dollar credit posted a growth rate of 21.7 per cent by the end of August, joint venture banks (19.6 per cent), joint stock commercial banks (6.4 per cent), while state-owned commercial banks witnessed a 5.8 per cent decrease against the previous month.