Dong Savings More Profitable than Dollar

Keeping the Vietnam dong in savings was more profitable than the US dollar in 2006 and this will repeat in 2007, according to bankers.

If one has VND160 million in his savings account this year, he will get VND13.4 million in interest for the whole year with the annual interest rate being around 8.4%.

If he exchanges VND160 million for US$10,000 and puts the amount into an account, he will get US$485 in interest (equal to VND7.8 million) with the annual interest rate being 4.85%.

The benefit from the deposited dollar is about three-fifths. Say, given the depreciation of the VND, about 1% against the dollar or VND1.6 million, the profit made from the dong is still higher.

Figures from banks show that interest rates for the deposited dollar have increased for years but profit from dollar savings is still about 60% compared with dong savings. The State Bank of Viet Nam has adjusted interest rates in favor of dong savings rather than dollar savings, therefore when dollar interest rates climb up, commercial banks also increase dong interest rates to ensure this policy.

Customers open savings accounts at Asia Commercial Bank in Ho Chi Minh City. (Photo: TC)

Another reason for higher profit from dong savings, according to banking experts, is the forex rate of the dollar and dong is “very stable”, and the VND depreciation is just about 1% per year.

When should foreign currencies be kept? Banking experts say only when the VND depreciation against strong currencies is high. For example, euro and yen savings have brought good profit this year because their values have increased strongly. However, the risk is that their values are also volatile.

What about 2007?

Next year will be another year that is not in favor of dollar savings or even more negative than 2006, according to many banking experts. The adversity will come from both forex and interest, said Nguyen Phuoc Thanh, director of Vietcombank Ho Chi Minh City.

The VND depreciation against the dollar is forecast at around 1%. Strong growths are forecast for Viet Nam’s export revenue, while the flows of capital and foreign currencies will become easier as the country accelerates its global integration, and also foreign direct and indirect investment are on the rise. These factors will limit the VND depreciation against the dollar.

Meanwhile, the interest rates of the greenback are forecast stable in the entire 2007 but it is possible that FED would cut the rates slightly, which is negative for dollar savings. Recent signs showed that FED has stopped its efforts to increase the rates in an attempt to control inflation in the US. If FED cuts the rate, the dollar interest in Viet Nam will go down accordingly.

At present, the dollar interest in Viet Nam is about 4.85% per annum.

Experts also say next year’s CPI in Viet Nam may rise but will not harm dong savings. The same situation happened in 2006 and earlier. This year’s CPI rose to 6.6% but the VND depreciation against the dollar is 1%.

For instance, with VND16,000 one could buy four kilos of rice early this year and only 3.5 kilos in the year-end. But one could exchange for US$1 in the beginning of the year and almost US$1 in the year-end.

Source: Tuoi Tre – Translated by Tuong Thuy

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