Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to 18,932 dong per dollar on Aug 18 from 18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilise the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong’s 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

“After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term,” he said.

“There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change.”

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said on Aug. 25, quoting the central bank data.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to 18,932 dong per dollar on Aug 18 from 18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilise the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong’s 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

“After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term,” he said.

“There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change.”

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said on Aug. 25, quoting the central bank data.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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Access to dollar loans grows harder

HCMC – Enterprises will find it more difficult to take out bank loans in the U.S. dollar from now to the end of the year given the banking system’s slower mobilization and the country’s trade deficit reduction effort.

Dinh The Hien, a member of the advisory board of Vietnam Export Import Commercial Bank (Eximbank), said that in the first half of this year when lending rates in dong were much higher than those for the dollar and the forex exchange rate was stable, enterprises benefited much from getting dollar loans.

However, from now to the year-end this advantage will disappear as banks will have to cut lending rates for Vietnam dong funds at the request of the Government, thus either reducing or abolishing the difference between dollar and dong interest rates, Hien added. Many banks are offering lending rates of 12% to 13.5% a year for enterprises at the moment.

Meanwhile, Tran Hoang Ngan, a member of the National Financial and Monetary Policies Advisory Council, said the State Bank of Vietnam had asked lender banks to limit dollar loans to help curb the trade deficit so it would be hard for enterprises to access dollar funds.

Sharing Ngan’s view, Pham Duy Hung, general director of Vietnam Asia Commercial Bank (VietA Bank), said his bank was giving priority to exporters who had dollar revenue.

Since last week, some major lenders such as Asia Commercial Bank (ACB) and Eximbank have raised their interest rates for U.S. dollar deposits to a maximum of 4.45% a year while some other joint-stock banks have increased their dollar deposit rates above 5%.

That shows dollar mobilization could not meet demand for dollar loans at banks. In fact, growth in U.S. dollar credit at banks in HCMC alone was 28.8% in the first seven months of the year while credit growth in Vietnam dong was only 5.1%, show figures of the central bank’s HCMC branch.

Meanwhile, according to figures of the National Financial Supervisory Committee, outstanding loans in the dollar in the banking system have exceeded dollar mobilization by VND40 trillion, equivalent to US$2.05 billion. Therefore, the possibility of banks increasing outstanding loans in the dollar in the rest of the year is small, experts said.

Ngan said export enterprises could borrow dollars as they had foreign currency income to pay debts and the forex rate risk would not be a problem for them. Meanwhile, other enterprises should receive loans in Vietnam dong as banks have reduced their lending rates for the local currency and put on many programs to boost their credit growth in Vietnam dong following their targets for the year.

For example, Asia Commercial Bank (ACB) has announced a VND3 trillion budget to give out loans for enterprises at preferential rates. An Binh Commercial has an unsecured loan program for small and medium enterprises, and Vietnam International Commercial Bank has a credit line of VND1.5 trillion for financing wood processing enterprises.

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Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to VND18,932 per dollar on August 18 from VND18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilize the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong's 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

"After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term," he said.

"There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change."

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said last Wednesday, quoting the central bank data.

Total credit was up just 12.97 percent, the central bank said in its July monthly report.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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