Alarm over foreign currency lending growth

October 02, 2017 - 09:00

According to the National Financial Supervisory Commission, in the first eight months of the year, lending in foreign currencies jumped by 11.5 per cent compared to only 1.7 per cent in the same period last year.

According to the National Financial Supervisory Commission, in the first eight months of the year, lending in foreign currencies jumped by 11.5 per cent compared to only 1.7 per cent in the same period last year.

It was slightly higher than the growth in đồng credit. 

Interest rates on loans in foreign currencies are much lower than on đồng loans.

In late August and early September, the interest rates on foreign currency loans stood at 2.8-6 per cent.

The average rates on đồng loans were 6.8-9 per cent for short-term loans and 9-11 per cent for medium- and long-term loans.

Besides, the supply of foreign currencies in the economy has been on an upward spiral in recent times.

Analysts at Bảo Việt Securities Company said outstanding loans in foreign currencies increased sharply thanks to the stability in the đồng-dollar exchange rate.

The US Federal Reserve’s temperate monetary policy has seen the US Dollar Index, which measures the dollar relative to a basket of foreign currencies, slide by 10.8 per cent this year.

In the period, the đồng has weakened by a modest 1.3 per cent against the dollar to VNĐ22,438.

An official from the Banking Strategy Institution said the high growth in foreign currency credit has been due to the rapid growth in imports this year -- of 22.3 per cent to US$135.6 billion.

The high growth in foreign currency lending has sparked concern among analysts.

Though the country’s foreign exchange reserves remain plentiful at around US$40 billion, there is no guarantee the inflow of foreign exchange would remain steady forever, they pointed out.

The money easily move to other places where returns are higher especially with the United States planning to hike interest rates one or two times in the next few months, they said.

Besides, accretion of foreign currencies at local banks has been slow – with their holdings being only 6.28 per cent higher than early August from a year earlier -- due to the central bank’s zero interest rate on foreign currency deposits as part of its anti-dollarisation fight.

HSBC CEO Phạm Hồng Hải told Đầu Tư Chứng Khoán (Securities Investment) newspaper that since mobilising foreign exchange is difficult, banks need to carefully consider their lending.

Many experts stressed the need for authorities to closely monitor banks’ lending in foreign currencies to ease the pressure on the exchange rate, which is often seen to increase late in the year due to increasing demand from businesses.

They also said the central bank should rethink the current zero interest rate policy.

Aware of the situation, the SBV governor issued a document on September 13 warning credit institutions and foreign bank branches to strictly implement regulations on foreign currency deposits and loans.

To ensure compliance with the SBV’s regulations and his directives on safe and sound operations of credit institutions, the governor said the institutions should strictly control credit growth in foreign currencies, keep their foreign currency credit-deposit ratio at appropriate levels and ensure balance between deposits and loans.

They must not resort to technical ruses to exceed the deposit interest rate ceiling, and acts of unfair competition in mobilising deposits are a strict no-no, he warned.

They must penalise heads of branches who do not comply with the SBV regulations and proactively report credit institutions competing in an unfair manner or violating regulations on foreign deposit interest rates, he said.

Gold deposits plummet

Gold deposits at banks dropped sharply from 32 tonnes in 2013 to a mere 2.89 tonnes in June this year.

Experts from the Foreign Exchange Management Department (FEMD) under the State Bank of Việt Nam pointed out the two main reasons for people shifting from gold to cash.

One is the sharp fall in the price of the precious metal: Since 2012 it has fallen relentlessly from VNĐ48-50 million per tael of 37.5 grammes to VNĐ37 million now. 

The FEMD also said the number of buying and selling transactions in recent months had dropped by 75 per cent from early 2013, also an indicator that people are no longer keen on gold.

Analysts said a huge amount of gold has been converted into cash by people for investing in businesses and asset classes that are expected to be more profitable like real estate and securities.

The other major reason for the drop in gold deposits is the central bank’s decision to scrap gold deposits and loans. 

Because of this, many people do not want to deposit their gold in banks and instead keep it at home.

The Việt Nam Gold Business Association confirmed this saying. It is estimated that some 500 tonnes (equivalent to 13.3 million taels) are held by people, adding it would be very useful if this gold is converted into đồng and invested in the economy.

The association has proposed on a number of occasions setting up a national gold transaction floor and issuing gold certificates or gold bonds to mobilise gold lying with the public.

Economist Nguyễn Trí Hiếu said it would be not easy to encourage people to sell their gold to invest in businesses unless market rather than administrative measures are used, thus creating a business-friendly environment.

Besides, measures are also necessary to ensure the stability of the đồng, he said.

These would improve people’s confidence greatly and persuade them to invest their gold in the economy, he said.

An SBV source also revealed that the central bank is seeking the opinion of ministries and experts on specific measures to encourage the public to invest their gold and dollar savings into production and trading activities. — VNS