Since the beginning of the year, the credit growth in many banks in Vietnam has been mostly seen in foreign currency credit as foreign exchange market keeps on the positive trend.
Circular 03 (dated May 2, 2012) released by the State Bank restricts the lending in foreign currencies to encourage enterprises to buy domestic goods including the export. State Bank has recently extended the validity of this circular to the end of December 2012. According to many experts, the State Bank should make amendment to circular 03 to make it suitable to the specific characteristics of export businesses.
USD loans still favored
Since the beginning of the year, credit growth in many commercial banks is mainly foreign currency credit as foreign exchange market keeps operating positively. In addition, the exchange rate remains stable, which leads to increased demand for borrowing foreign currency of the enterprises.
VND lending interest rate is currently at least 15 percent/year. Therefore, borrowing foreign currency with the interest rate at 6-7 percent/ year, the company enjoys more benefits and bears fewer risks.
One notable point in Circular 03 is the permission to borrow foreign currency in order to settle payment to foreign countries to import goods and services when the customer has enough foreign currency from manufacturing and business activities to pay debt.
Accordingly, exporters, though having foreign currency income in the future, are not allowed to borrow foreign currency for domestic use.
As for the demands of other foreign currency in the priority areas under the policy of the Government, commercial banks are supposed to get the written approval by the State Bank for each specific case. However, the State Bank has recently allowed the extension of validity of Circular 03 to December 2012.
Mr Tran Xuan Quang, Deputy General Director of Maritime Bank, said that this is of great significance to enterprises, giving them the opportunity to reduce capital expenditure in a reasonable way. They can borrow foreign currency at lower interest rate while the exchange rate remains relatively stable.
Therefore, the export enterprises can proactively borrow foreign currency to import goods or use VND to buy foreign currency from State Bank to import goods, creating more financing options to facilitate the business activities.
Exchange rate tendency to be shaped and predicaments to be settled
The exchange rate risk is one of the issues that businesses and banks taken into account in foreign currency loans. With current abundant foreign reserves of the State Bank and good foreign currency liquidity, commercial banks are now purchasing net foreign currency from customers. But whether long-term exchange rate fluctuates or not is a matter of current concern.
According to Dr Le Xuan Nghia, U.S. dollar on world markets tends to increase thanks to the recovery of the U.S. economy. In Vietnam, the USD tends to reverse as a result of sharp import decline due to economic stagnation. This will lead to the low deficit of the current account balance.
Meanwhile, the capital balance changes negligibly. As a result, it is likely that international payment balance surplus may reach billions of USD. It is, therefore, projected that there will be little adjustment of the exchange rate. And in case exchange rate increases, it will not count a lot.
But according to Dr Le Dat Chi, Ho Chi Minh Economics University: "The exchange rate issue depends on the gold management of the State Bank and the current consumption stimulating policy.
Although the national gold price decreases under the influence of world gold price, the gap between world price and domestic gold prices remains high. This will put pressure on the exchange rate, especially when there is still demand for buying gold to the earlier selling status of stabilized gold of G5 +1 NH group . So in the reports of foreign financial institutions, the biggest mystery of Vietnam is the exchange rate. "
It can be concluded that the foreign currency credit limit will definitely help our country handle with dollarization. VND lending interest rates are adjusted downward. However, if commercial banks continue to drag down interest rates to shorten the difference between the VND and foreign currency loans, businesses can return to VND credit.
Thus, according to many experts, the anti-dollarization is necessary. However, Circular 03 of the State Bank will cause difficulties for businesses. In our country, pure business and pure export import account for a large portion.
Under Circular 03, export businesses are not allowed to access foreign currency loans when they have no demand for payment of imports and mainly purchase raw materials domestically. Only importers of raw materials to produce and export can be access to new foreign currency loans at low cost.
This will cause remarkable decline in export businesses’ earnings and eliminate their business motivation while the banks do not have to suffer from credit risks and are entitled to the difference between mobilization interest rates and lending.
PV
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