Foreign Currency Credit Remains Attractive in 2012

In late 2011, a southern branch director of Vietnam Export Import Commercial Joint Stock Bank (Eximbank) said the number of corporate borrowers in his area increased quickly.

 

The driving boost is an exclusive package of products for corporate customers, particularly competitive foreign currency credits.

 

Specifically, Eximbank is offering preferential export credit. Exporters will be able to access low-rate foreign currency credits in couple with exchange rate risk reduction mechanism. USD lending rates are just 5 percent per annum, lower than the popular rates of 6 percent - 9 percent on the market. In addition, to support borrowers to have steady borrowing costs, the bank pledges to provide an “insurance” policy for their loans in case foreign exchange rates increase over 1 percent in a month.

 

Low interest rates and limited exchange rate risks, this product immediately attracts the attention of exporters. For Eximbank, it not only helps increase customers but related products are also expanded because credits are associated with deposits, cash flow management, export - import payment, etc.

 

The product is aimed to gather forces for exporters, Eximbank explained. The State also encourages the support for this group of borrowers.

 

In 2011, credit growth of the whole banking system was just 10.9 percent, according to the State Bank of Vietnam (updated to December 21, 2011) but export credit expanded up to 58 percent. State Bank Governor Nguyen Van Binh said capital flows were intentionally channelled to targeted addresses. Stronger support helped export turnover reach a new record in 2011 and narrow trade deficit.

 

In addition to more funding, lower borrowing rate is also a magnet. Dollar borrowing rates are widely ranging from 6 percent to 9 percent per annum, much lower than Vietnamese dong rates of 18 percent - 24 percent while the dollar/dong exchange rate is kept relatively stable. By borrowing US dollars at low interest rates and exchanging to Vietnamese dong to fund production and business operations, exporters are able to cut costs to edge up competitiveness.

 

In 2012, the difference between USD and VND interest rates will remain wide enough to make foreign currency credits attractive. In addition, the State Bank of Vietnam said it determined to cap the fluctuation of USD/VND exchange rates in the range of only 2 percent - 3 percent, a message indicating the effort to limit exchange rate risks. Foreign currency credit will continue to be a mainstream but selective flow.

 

In 2011, the central bank acted to put the brakes on capital flows by classifying borrower groups and giving priority to exporters. This eased pressures of foreign currency demand on exchange rates when loans get reached maturity. In reality, the growth of foreign currency credit tended to stabilise after the boom in 2010.

 

Statistical data showed that foreign credit growth declined to 18 percent in 2011 from 48.45 percent in 2010 (3.2 times higher than in 2009) and approximated the respective growths of 15.12 percent and 17.61 percent in 2009 and 2008.