At Vietcombank, the shortage of foreign currencies does not occur as the outstanding loans in foreign currencies are still below 50% of the total mobilised capital. As for foreign currency trading, the HCM City branch of Vietcombank sells some $400mil a month and buys the same volume, which means a balance in supply and demand.

We once lacked foreign currencies a little, when the greenback revaluated sharply, and the demand for foreign currencies unexpectedly increased from oil and petrol importers. However, the shortage was not so serious that we had to ask to buy foreign currencies from the State Bank of Vietnam.

As for other banks, I know that some of them are lacking foreign currencies for lending (enterprises prefer borrowing in US$ instead of VND due to the lower interest rates). The outstanding loans of the banks in US$ amount to 70% of total outstanding loans, while the mobilised capital in US$ is less than 50% of total mobilised capital. That explains why many banks have rushed to raise US$ deposit interest rates.

The situation of commercial banks can be described as follows: they can suffer losses with VND mobilised capital while making profit with US$ capital.

Banks suffer these losses for three reasons: 1. the State Bank of Vietnam now requires higher compulsory reserve ratio on deposits 2. commercial banks are now allowed to lend securities investors more than 3% of total outstanding loans 3. the inter-bank interest rate is at horribly low levels, which have not been seen in the last several years. VND capital is now in big excess.

Meanwhile, domestic banks are still trying to raise the offered interest rates on US$ deposits, because they can make deposits in US$ at foreign banks (the rates in the world are higher than in Vietnam).

You have said that banks would incur loss with VND mobilised capital, but several banks have still raised the deposit interest rates. Why?

As for the banks, the excess of VND capital is just temporary. In the long term, they still need to mobilise more capital, and they have to accept loss. These banks are mostly small joint stock banks, which need to offer attractive interest rates in order to conquer the market.

What are your forecasts about the VND interest rate’s performance from now to the year’s end?

The interest rate will keep stable at the current level with no unexpected changes. The demand for VND capital will increase in the fourth quarter of the year; therefore, the profuse capital will find destinations.

How about deposit interest rates?

Banks will have to keep the rates stable in order to successfully mobilise capital from the public. If the interest rates go down sharply, people will not make deposits at banks any more.

We are now in a difficult time with two difficult tasks: reaching a high growth rate and curbing inflation. If we can control inflation, will we be able to gain the expected high growth rate?

I think we need to do two things. First, ensure the quality of credit. The central bank is right when deciding to limit the loans for securities investments, but it is necessary to reconsider the cap of 3%. Second, ensure society’s investment.

I mean bank’s capital must serve production, business and people’s lives, not investment in infrastructure, which can create GDP, but will influence inflation.

How are the bank loans for infrastructure projects performing?

The sum of money injected in infrastructure items is no more than 10% of total outstanding loans. Many banks are trying to reduce the proportion of loans for infrastructure projects. Vietcombank only funds projects that can get back capital in a short time.

Returning to the story about foreign currencies, please tell us your forecast about the VND/US$ exchange rate.

The movement of shifting from VND deposits to US$ deposits was foreseeable. The movement did not occur in the first six months of the year as the exchange rate was stable. However, if US$ deposit interest rates keep rising, the movement proves to be indispensable. The movement will certainly not support the current process of combating the dollarisation in the national economy.

In the first quarter of 2007, VND revaluated by 0.3% against the greenback compared to the end of 2006, but by early September 2007, the greenback had revaluated by 1.3% against the local currency. The dollar has made a spectacular overthrow of the VND. What would you say about the move?

There is no big problem if a currency devaluates by 2% if the devaluation takes place gradually and causes no shock. The sharp increases in VND/US$ exchange rate as seen in the last time were not a good thing because they prompted enterprises to hold foreign currencies tightly.

Supposing that the stock market warms up again by the end of this year, and the indirect investment keeps inflowing, how will the exchange rate diagram look like?

The foreign currencies are now in temporary excess as foreign investment funds have brought big money to be disbursed for big IPOs

I must stress that the price increases and VND/US$ exchange rate increases will ‘deluge’ banks. The central bank is making the right decision when trying to limit the availability of foreign currency loans. The VND, in my opinion, will not increase sharply by the year’s end.

Source:  VNECONOMY.