Vietnam’s largest banks will lower their interest rates on dollar deposits to 1.5 percent in June from around 2 percent now in a move to help avoid dollar hoarding in domestic markets, the central bank said.
All state-run banks plus Vietcombank, Vietnam’s largest partly private lender, have also agreed to set the ceiling for dollar lending rates at 3%, the State Bank of Vietnam said in a statement seen on Saturday.
“The governor of the SBV is asking Vietnam Banks Association to seek consensus with other commercial banks to lower interest rates and (help) stabilize the forex market,” it said.
The new rates come into effect tomorrow.
The interbank 12-month dollar lending rates rose to 2.29 percent on Friday from 2.20 percent a week ago. This is still below the rate of 2.45 percent on April 29, according to Reuters data.
The central bank said its inspectors will also step up large-scale checks from next month to deal with corporate dollar hoarding, which has pushed the exchange rate beyond regulated levels and led to a dollar shortage for the past several months.
The Dow Jones newswire quoted Hanoi-based bankers as saying the SVB is implementing measures to make dollar holders sell greenbacks to banks, and encourage enterprises to borrow dollars instead of buying them.
Earlier this month the government asked authorities, including the police, to help regulate foreign exchange transactions as part of efforts to reduce dollarization in the economy and control dollar rates on the black market.
The central bank will accept the country’s recently issued dollar-denominated bonds as collateral in its dollar lending operations to help ease the tightness in dollar supply, bankers said on Friday.
The central bank said it would accept foreign currency denominated “valuable papers” as collateral for the first time, without elaborating.
Bankers said these papers would primarily include Vietnam’s US$230 million dollar bonds issued in March and they would be accepted in the central bank’s dollar lending operations.
“This will accommodate the supply of short-term funds to banks which suffer from liquidity shortfall,” the bank said in a statement seen on Friday.
Importers have been complaining they were unable to buy dollars at the official exchange rate due to dollar shortage at the banks.
“The new rule would create a new mechanism for the central bank to intervene to solve the dollar shortage issue but given the amount of domestic dollar bonds, it will not be much,” a banker in Ho Chi Minh City said.
The central bank said earlier this month that banks had plenty of dollars that they can lend but a shortage of dollars to sell as exporters preferred to keep their export earnings in the greenback on fear of a faster depreciation of the dong.
Vietnam devalued its dong currency twice last year and the currency remains under pressure because of general economic uncertainty, an expected turnaround in the trade balance to a deficit and the fact that the dong has weakened less than many of its peers recently.
The government estimated earlier this week that the trade deficit in May would widen to $1.5 billion from $1.18 billion in April.
But State Bank Governor Nguyen Van Giau said last week he saw no need to adjust the dong’s exchange rate against the dollar on the grounds that the dollar was depreciating against other major currencies.
The central bank allows interbank dollar/dong transactions to trade up to 5 percent on either side of the official reference rate. It set the rate at VND16,938 per dollar on Saturday. (TN)
Showing posts with label Viet Nam Dong - VND. Show all posts
Showing posts with label Viet Nam Dong - VND. Show all posts
Sunday, May 31, 2009
Sunday, February 22, 2009
Dollarization domination
Dollarization in Vietnam is estimated by the State Bank of Vietnam at 21%, relatively high when noting that the figure is 9% in China and 1% in Thailand. Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, discussed how serious dollarization is in Vietnam and how to fix the problem.
He said that the Government has asked the State Bank of Vietnam (SBV) to draw up a master plan on reducing dollarization. The plan needs to improve the convertibility of the VND and the value of the VND in international transactions.
Could you please tell us more about the plan?
Previously, experts once suggested that all sums of money transferred from abroad into Vietnam should be converted into VND. However, the Government and central bank decided against this after thorough consideration. Right after this suggestion was made public, the foreign currency inflow into Vietnam decreased sharply.
Therefore, measures to reverse dollarization must be flexible and not extreme, and it is clear that direct intervention or administrative orders are not the right measures. This is the most important requirement for the plan.
Second, measures must ensure that depositors and enterprises have higher confidence in the commercial bank system
Third, it is necessary to make the cost of VND transactions lower compared to US$ transactions, which will help improve the convertibility of the local currency.
Fourth, it is necessary to stabilize the economy, which will result in people having more confidence in the local currency, and get them to keep VND in their wallets.
However, I have to acknowledge that to some extent, we cannot absolutely eliminate the dollarization of the national economy.
IN 2007, the foreign portfolio investment capital into Vietnam reached $6.2bil. Can you see any link between this and dollarization?
As we open the national economy, more and more foreign capital will enter, and if the foreign capital is overly high compared to the absorbability of the national economy, the supply of foreign currencies will be profuse, and dollarization will increase.
We have many choices of ways to deal with the problem. The Government is pursuing the principle that the central bank will continue buying foreign currencies to stabilize the value of the VND. Also, we need to take measures to control the VND supply in order stunt inflation. These steps were taken, to some extent, in 2007, and we will continue them in 2008.
Some experts have suggested that Vietnam should allow foreign investors to open foreign currency accounts to make securities transactions. If so, Vietnam can reduce dollarization, successfully control inflation, while foreign currencies in accounts at commercial banks can still produce profits for money owners. What do you think about this?
I have heard this suggestion. However, it may be contrary to the regulations stipulated in the Ordinance on Forex Management. The ordinance says that all foreign money must be transferred into Vietnam through a special account, and after that, the money must go into investments. (VNeconomy)
He said that the Government has asked the State Bank of Vietnam (SBV) to draw up a master plan on reducing dollarization. The plan needs to improve the convertibility of the VND and the value of the VND in international transactions.
Could you please tell us more about the plan?
Previously, experts once suggested that all sums of money transferred from abroad into Vietnam should be converted into VND. However, the Government and central bank decided against this after thorough consideration. Right after this suggestion was made public, the foreign currency inflow into Vietnam decreased sharply.
Therefore, measures to reverse dollarization must be flexible and not extreme, and it is clear that direct intervention or administrative orders are not the right measures. This is the most important requirement for the plan.
Second, measures must ensure that depositors and enterprises have higher confidence in the commercial bank system
Third, it is necessary to make the cost of VND transactions lower compared to US$ transactions, which will help improve the convertibility of the local currency.
Fourth, it is necessary to stabilize the economy, which will result in people having more confidence in the local currency, and get them to keep VND in their wallets.
However, I have to acknowledge that to some extent, we cannot absolutely eliminate the dollarization of the national economy.
IN 2007, the foreign portfolio investment capital into Vietnam reached $6.2bil. Can you see any link between this and dollarization?
As we open the national economy, more and more foreign capital will enter, and if the foreign capital is overly high compared to the absorbability of the national economy, the supply of foreign currencies will be profuse, and dollarization will increase.
We have many choices of ways to deal with the problem. The Government is pursuing the principle that the central bank will continue buying foreign currencies to stabilize the value of the VND. Also, we need to take measures to control the VND supply in order stunt inflation. These steps were taken, to some extent, in 2007, and we will continue them in 2008.
Some experts have suggested that Vietnam should allow foreign investors to open foreign currency accounts to make securities transactions. If so, Vietnam can reduce dollarization, successfully control inflation, while foreign currencies in accounts at commercial banks can still produce profits for money owners. What do you think about this?
I have heard this suggestion. However, it may be contrary to the regulations stipulated in the Ordinance on Forex Management. The ordinance says that all foreign money must be transferred into Vietnam through a special account, and after that, the money must go into investments. (VNeconomy)
Banks’ compulsory ratio raised to curb inflation
The State Bank of Vietnam (SBV) has made its first move in its plan to control inflation, expected to be very high this year, by requiring a higher compulsory reserve ratio for deposits.
Inflation reached 12.63% by the end of 2007; this was partly attributed to the poor monetary policy of the central bank. Now though, it seems the central bank has learned from its mistake: immediately in 2008, it decided to tighten credit by increasing the compulsory reserve ratio.
The compulsory reserve ratios, according to decision No 187 dated January 16, will increase by 1% and be applied to all kinds of deposits.
The VND demand deposit and less-than-12-month term deposits will have a compulsory reserve ratio of 11% instead of 10%, while the ratio for more-than-12-month term deposits will be 5% instead of 4%. The same compulsory reserve ratios will also be applied for foreign currency deposits.
The decision does not become effective immediately, but will become valid in February 2008, so that commercial banks can have more time to prepare. Meanwhile, the ratio increases will not be applied to credit institutions operating in rural areas (agriculture bank, rural joint stock banks, the central people’s credit fund and cooperation banks) so as to support economic development of rural areas.
An SBV official said the compulsory reserve ratio increases are actually quite gentle when compared to the increases in June 2007, when the central bank unexpectedly increase ratios into double digits (for example, the ratio for VND deposits of less than 12 months rose from 5% to 10%).
It seems that the central bank has decided to change tactics; it is trying to tighten credit step by step instead of suddenly turning off the ‘capital tap’, in order to avoid abrupt market shocks.
The official also said that the central bank cannot raise the compulsory reserve ratio too sharply right before Tet, which is always considered the most ‘sensitive’ moment of the year. In general, commercial banks need more capital in the months before Tet to fund their clients’ business deals, and the sharp increases in the compulsory reserve ratio will force banks to pay higher capital mobilization costs.
Deputy Director of a joint stock bank said the demand for capital is increasing, which is why banks have to offer higher interest rates for deposits.
“The 1% compulsory reserve ratio increase means that our capital mobilization cost is 1% higher,” he said.
However, he acknowledged that with the slight increase of 1%, commercial banks ‘will still be able to manage’. Besides, he said, this is a necessary move to curb inflation.
Leader of a state owned bank estimates that the decision will help the central bank withdraw some VND3tril ($187.5mil) from circulation.
The official believes that this is just the first move by the central bank in its strategy to control inflation, which may be followed by future, higher compulsory reserve ratios.
“The central bank is striving to gradually withdraw money from circulation, stabilize their monetary policy and curb inflation,” he said.
The 1% increase of the compulsory reserve ratio is just the first step the central bank needs to take in order to slow down inflation. It remains unclear how many times the compulsory reserve ratio will increase and when the central bank will stop. The State Bank will make those decisions after considering the performance of the monetary market.
Of course, commercial banks do not want these increases, because they make their capital mobilization cost higher. However, “if the compulsory reserve ratios are raised step by step, we will be okay,” a bank’s Director said. (Securities Investment Newspaper)
Inflation reached 12.63% by the end of 2007; this was partly attributed to the poor monetary policy of the central bank. Now though, it seems the central bank has learned from its mistake: immediately in 2008, it decided to tighten credit by increasing the compulsory reserve ratio.
The compulsory reserve ratios, according to decision No 187 dated January 16, will increase by 1% and be applied to all kinds of deposits.
The VND demand deposit and less-than-12-month term deposits will have a compulsory reserve ratio of 11% instead of 10%, while the ratio for more-than-12-month term deposits will be 5% instead of 4%. The same compulsory reserve ratios will also be applied for foreign currency deposits.
The decision does not become effective immediately, but will become valid in February 2008, so that commercial banks can have more time to prepare. Meanwhile, the ratio increases will not be applied to credit institutions operating in rural areas (agriculture bank, rural joint stock banks, the central people’s credit fund and cooperation banks) so as to support economic development of rural areas.
An SBV official said the compulsory reserve ratio increases are actually quite gentle when compared to the increases in June 2007, when the central bank unexpectedly increase ratios into double digits (for example, the ratio for VND deposits of less than 12 months rose from 5% to 10%).
It seems that the central bank has decided to change tactics; it is trying to tighten credit step by step instead of suddenly turning off the ‘capital tap’, in order to avoid abrupt market shocks.
The official also said that the central bank cannot raise the compulsory reserve ratio too sharply right before Tet, which is always considered the most ‘sensitive’ moment of the year. In general, commercial banks need more capital in the months before Tet to fund their clients’ business deals, and the sharp increases in the compulsory reserve ratio will force banks to pay higher capital mobilization costs.
Deputy Director of a joint stock bank said the demand for capital is increasing, which is why banks have to offer higher interest rates for deposits.
“The 1% compulsory reserve ratio increase means that our capital mobilization cost is 1% higher,” he said.
However, he acknowledged that with the slight increase of 1%, commercial banks ‘will still be able to manage’. Besides, he said, this is a necessary move to curb inflation.
Leader of a state owned bank estimates that the decision will help the central bank withdraw some VND3tril ($187.5mil) from circulation.
The official believes that this is just the first move by the central bank in its strategy to control inflation, which may be followed by future, higher compulsory reserve ratios.
“The central bank is striving to gradually withdraw money from circulation, stabilize their monetary policy and curb inflation,” he said.
The 1% increase of the compulsory reserve ratio is just the first step the central bank needs to take in order to slow down inflation. It remains unclear how many times the compulsory reserve ratio will increase and when the central bank will stop. The State Bank will make those decisions after considering the performance of the monetary market.
Of course, commercial banks do not want these increases, because they make their capital mobilization cost higher. However, “if the compulsory reserve ratios are raised step by step, we will be okay,” a bank’s Director said. (Securities Investment Newspaper)
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