Foreign exchange rates between Vietnamese dong and US dollars have been kept stable since the end of last year. This is resulted from balanced supply and supply of foreign currencies on the market as well as administrative measures from the State Bank of Vietnam (SBV). Most recently, on March 20, 2012, the central bank decided to shrink foreign currency position in commercial banks to prevent their dollar hoardings.
The Circular No. 07/2012/TT-NHNN issued by the Governor of the SBV provides foreign currency positions at credit institutions and foreign bank branches, effective from May 2, 2012. The most important content of the circular is the foreign currency position limit calculated by the ratio of the total positive or negative foreign currency position over the credit institution's registered capital. Accordingly, the total positive foreign currency position of credit institutions should not exceed 20 percent of the own capital of credit institutions, and the total negative foreign currency position at the end of working day of credit institutions should not exceed 20 percent of the own capital of credit institutions.
Foreign bank branches in Vietnam with a registered capital of below US$25 million each are allowed to apply the total foreign currency position limit of no more than US$5 million at the end of working day. Their total negative foreign currency position converted into US dollars at the end of working day should not exceed US$5 million.
Credit institutions are required to send reports of their foreign currency position of the previous working day at 2:00 p.m. at the latest to the SBV.
Under the new rules, banks will not be allowed to exceed a foreign currency position of 20 percent of their capital instead of the previous 30 percent.
It is more than one month before the new policy comes into force. The time is considered enough for banks to shrink foreign currency positions without causing any shocks. According to experts, the foreign currency position with the range of 20 percent to either side is not too narrow in relation to the current reality. But the positive status is a distant reality for Vietnamese banks in recent years. In 2012, the demand for foreign currency was forecast to not to be as strained as in previous years because trade deficit declined sharply in the past months. The positive status has taken shape but the upper limit of 20 percent remains distant.
However, the negative status limit of 20 percent is a problem. In recent months, the existing limit on positions of 30 percent of a bank's registered capital was blamed for encouraging banks to convert their foreign currencies to Vietnamese dong to receive higher interest rates when depositing in other banks. These operations dumped a significant supply of foreign currency on the market. The new quota will ensure a tighter supply of dollars on the market.
This regulation takes effect on the same day as the Circular 03/2012/TT-NHNN foreign currency lending for resident borrowers. According to this ruling, the group of foreign currency borrowers is narrowed. Borrowers are not allowed to purchase from lenders or other credit institutions to pay loans. This means that only borrowers with sufficient incomes in foreign currency from their production and business operations are allowed to borrow. Tightened regulations will limit the supply of US dollars bearing lower interest rates converted into Vietnamese dong to deposit for higher rates.
Le Minh
Vietnamese
