Vietnam dong loan to keep rising, banks expect

Commercial banks expect dong loans will move up in spite of high lending rates and the central bank’s cap on the credit growth rate of loan on non-productive sectors.

Importers switch to borrow dong to buy dollars as they find themselves unable to repay the dollar loans in accordance with the central bank’s circular No.7 (Photo:Minh Tri)

Phan Thi Thanh Binh of the ANZ Vietnam said the demand for dong loans of local importers was surging due to the Circular No.7 issued by the State Bank of Vietnam.

According to the circular, credit institutions are allowed to offer foreign-currency loans in short-, medium- and long-terms for individuals and organizations that need to pay for their imports of commodities and services.

Borrowers must prove they have enough foreign currency to repay the debt in the future.

However, many importers found themselves unable to repay the loans in dollars, Binh noticed, adding the importers switched to borrow dongs to buy the greenbacks.

Statistics from the central bank show credit growth rate of dollar loans remained higher than the rate of dong loans in the first three months of the year, during which dollar loans rose 12 percent and dong loans moved up 1.43 percent.

Experts said the rising dollar loans were a repeat of a steep increase of 37.76 percent last year but the central bank said the lending growth rate of dollar loans in the first quarter has a big abstract amount from the surging foreign exchange of 7.18 percent in February 11th.

Economists said the credit growth rate of 3.67 percent of the economy committed with the government’s regulation on reducing the lending growth to below 20 percent, but it remained low.

The government in February approved a plan to cut annual credit growth to below 20 percent from the initial target of 23 percent as part of a series of measures to curb inflation.

“The low lending growth rate came from two facts that high interest rates have curbed lending demand and the liquidity of commercial banks is low as the central bank avoided injecting more cashes in the opening market,” said a financial expert of a HCMC-based bank.

Paul Gruenwald, chief economist for Asia at ANZ Bank, said Vietnam’s inflation rate will still be at high level as the country’s electricity and gasoline prices will rise on the global increasing material costs.

The lending growth is anticipated to continue to be low until the last quarter of the year as the central bank raised key interest rates including refinancing and discount rates, Gruenwald said.

The Asian Development Bank (ADB) said early this month that Vietnam’s inflation is anticipated to remain high through 2011 averaging 13.3 percent, before moderating to an average 6.8 percent in 2012.

The Manila-based bank said in its latest Asian Development Outlook that Vietnam has launched comprehensive measures to control inflation and restore macroeconomic stability under Resolution 11, which it called a “timely” move. If measures are effectively implemented, macroeconomic stability can be restored, it said.

ADB, however, reduced its growth forecast for Vietnam in 2011 to 6.1 percent from 7 percent projected in September 2010.

By Diu Ngan – Translated by Vu Minh

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