VIETNAM BANKS RACE TO KEEP DOLLAR BORROWERS AS TIGHTENED LENDING CONDITIONS NEAR

“Those businesses in need of foreign currencies for goods and service payments and fuel imports are still allowed to borrow the money,” Dung toldTuoi Tre(Youth) newspaper.

Even so, many credit institutions say the tightened conditions would drive a lot of their customers away, prompting them to find new ways to keep borrowers.

Some banks have allowed their customers to ‘register’ loans in foreign currencies they want to borrow by the end of this month to dodge the new policy.

This means banks have guaranteed to lend foreign currencies to businesses before the Circular No.24 takes effect, so they will not violate the rule, according to analysts.

“Another solution is to offer loans in VND at very low interest rates, even at a loss,” the director of a bank said on condition of anonymity.

Banks try to keep borrowers in the hope that these customers will use their other services to make up for the loss caused by the cheap interest rates, according to the banker.

De-dollarization plan

Credit institutions in Vietnam have also struggled to attract deposits in foreign currencies, especially USD, after the SBV set the interest rateto zeroin December 2015.

Banks have had to offer promotions and gifts to lure dollar deposits from customers, otherwise “they withdraw their deposits in both USD and VND,” a director of one bank said.

The tightened rule on lending in foreign currencies, as well as the scrapping of the ceiling on individual dollar deposits, is amongst measures consistently taken by the SBV in the last few years to de-dollarize the economy.

Businesses used to be able to borrow loans in foreign currencies and exchange the credits for the dong to buy machinery or materials to serve their production, the SBV monetary policy head, said.

“These borrowers would export their products and use foreign currencies to repay their loans,” he explained.

It is seen as a supporting move by the SBV to businesses, as it was much cheaper to borrow in foreign currencies than in the dong, according to Nguyen Hoang Minh, deputy director of the Ho Chi Minh City branch of the SBV.

“There were times when the interest rates for loans in USD were only a third of those for lending in dong,” he elaborated.

However, as the economy has improved and Vietnam’s credit rating becomes healthier, the SBV decided that it was time to tighten lending in foreign currencies, Minh said.

“The interest rates for loans in VND have significantly reduced,” he said.

“As part of its de-dollarization roadmap, the SBV wants to keep people from hoarding U.S. dollars by imposing a zero interest rate for dollar deposits and tightening up dollar loans.

“Businesses will surely be affected by the tightened condition, but we have to accept it as we must move with the trend.”

Source: The Business Times