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US dollar loans preferred for low capital costs

Update: October, 20/2016 - 18:25
Not many enterprises are qualified to access dollar loans after the State Bank of Việt Nam (SBV) tightened lending in foreign currencies from March in an effort to step up its anti-dollarisation drive. — Photo vneconomy.vn
Viet Nam News

HÀ NỘI – Despite potential foreign exchange rate risks, domestic enterprises still prefer borrowing US dollar loans to cut financial costs as their lending interest rates are much lower than đồng loans.

Đầu tư Chứng khoán (Securities Investment) newspaper quoted Trần Việt Anh, general director of Nam Thái Sơn Company, a plastic importer, as saying that his firm, which is capable of borrowing US dollar thanks to its dollar income, chooses US currency loans to save capital costs.

Nam Thái Sơn Company gets short-term dollar loans at interest rate of roughly 3 per cent per year, while the cost for the đồng loans is doubles or even triple, Anh said.

In fact, not many enterprises are qualified to access dollar loans after the State Bank of Việt Nam (SBV) tightened lending in foreign currencies from March in an effort to step up its anti-dollarisation drive.

Under Circular 24/2015/TT-NHNN, effective in March, commercial banks will no longer be allowed to lend in foreign currency to exporters who do not need it for offshore payments. Lending is only available as long, medium- and short-term loans for offshore payments when importing goods and services, provided that the borrowers have sufficient foreign currency revenue from their production or business activities to repay these loans.

Statistics from the HCM City Statistics Office revealed that until early August 2016, the total US dollar outstanding loans in the city reached $5.96 billion, accounting for 9.8 per cent of the city’s total loans.

Domestic dollar demand in the first half of the year was low due to an import decline. According to the General Statistics Office, the country’s import turnover declined 0.5 per cent year-on-year, of which import values of machines and equipment, and petroleum reduced $900 million and $507 million, respectively.

Thanks to the rising dollar source in the domestic market, the SBV reportedly purchased some $11 billion in the first three quarters, lifting the country’s US dollar reserve to more than $40 billion. - VNS

 

 

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