Speaking at a meeting with leaders of banks in the country’s south on Monday, Tuan said while banks were asking the central bank for help to improve their dollar liquidity, some of them were holding on to excessive amounts of dollars.

“Prior to the dong devaluation on February 11, the banking system’s foreign exchange position was 1.5% long but later 1.16% short. In fact some banks have a very long position, though,” Tuan said.

Banks can now buy and hold foreign currencies, mostly the greenback, which account for a maximum of 30% of equity. But the relevant decision was issued in 2002 when banks had small equity.

Tuan said a VND1-trillion bank could hold up to US$15-20 million and the amount for a VND10-trillion bank ranges from US$300 million to US$400 million. “Ten banks of those sizes can hold up to US$2-3 billion,” he added.

He stressed there were banks asking their authorized staff to deposit their surplus foreign funds at other banks to enjoy an attractive interest rate. “That’s a way of dollar speculation and the central bank will check suspicious banks.”

The dollar deposit rate is high, at 5% per year, given high demand for dollar loans triggered by the central bank’s decision to relax the rule on dollar borrowing in late 2009, according to Tuan.

Exporters can now borrow U.S. dollars though they do not have demand for this currency for payment, because borrowing the dollar is cheaper than the Vietnamese dong.

Tuan said the central bank would issue new rules restricting those eligible to borrow dollars at banks and cutting the permissible foreign exchange holdings by banks. Besides, the central bank will consider allowing banks to provide derivatives on the dollar with terms longer than three months so that they can minimize foreign exchange risks.

To curb inflation, interest rates must be raised to lower the money supply, he said, but the hike should be sensible. Vietnam’s interest rates are abnormally high; a deposit rate of 15%-16% certainly pushes up the lending rate to 24%, he said, adding no enterprise could survive that rate.

He said credit growth in December last year was 3% while the January figure was 1.7% but most of the credits flowed into real estate.

“In consideration of the figures I have, if Vietnam’s gross domestic product falls by one percentage point, 1.7 million jobs will be lost,” Tuan said. So increasing interest rates is a must but this should be reasonable.

The central bank will issue an instructive comprising seven measures to carry out the Government’s resolution on Tuesday at the latest. Deputy governor Nguyen Van Binh said in a statement on the central bank’s website that one of the seven measures would be to keep 2011 credit growth below 20% but manufacturing, agriculture, supporting industries, and small and medium enterprises were those given priority to access bank loans.

At the meeting, banks asked the central bank to have more stable policy so that they can map out a long-term development strategy. In addition, policies on interest rates and forex rates should reflect the market’s demand and supply.