HCMC - The central bank on Monday raised the forex reserve requirements at credit institutions by one percentage point in a move to cool down the foreign currency credit growth, and warned to take a tough stance against those banks posting high dollar credit growth rates. The decision will take effect next month.
By Thuy Trieu - The Saigon Times Daily
HCMC - The central bank on Monday raised the forex reserve requirements at credit institutions by one percentage point in a move to cool down the foreign currency credit growth, and warned to take a tough stance against those banks posting high dollar credit growth rates. The decision will take effect next month.
Accordingly, the compulsory reserve ratio for call deposits and under-12-month term deposits in foreign currencies – mainly the U.S. dollar – will be raised to 8% from the previous 7%.
For term deposits longer than 12 months, the reserve requirements for these credit institutions will be 6%.
However, the Vietnam Bank for Agriculture and Rural Development, or Agribank, as well as central credit funds and cooperative credit institutions enjoy lower ratios for both categories of foreign currency deposits, at 7% and 5%, respectively.
This is the third time this year the State Bank of Vietnam (SBV) has increased the reserve requirements, with the total increase of four percentage points.
The rise in the compulsory reserve in foreign currencies is the follow-up action of the central bank to limit the credit growth in foreign currencies which is feared to pile pressure on the exchange rate at the year’s end.
The higher reserve requirements in foreign currencies would prop up the borrowing costs in foreign currencies for enterprises, as it forces banks to increase the foreign currency interest rate and thus narrow down the difference in interest rates between Vietnam dong and foreign currencies. At present, most banks charge an annual interest rate for dollar loans at between 6% and 8% a year.
Alongside higher foreign currency reserve requirements, the central bank will also take administrative measures against those banks that post high credit growth rates in foreign currencies.
After a meeting with 12 big commercial banks at the end of last week, the central bank’s governor said in a press release that inspections would be launched into those credit institutions with high foreign currency credit growth within the rest of this year.
The central bank would impose strict penalties on those organizations with lending infringements. Though the central bank has issued a circular to set limits on foreign currency borrowers, the credit growth continued going up in the past several months with U.S. dollar loans in the year’s first six months rising by 23% against late 2010 while that of Vietnam dong inched up only 3%.
The situation has sparked concerns among experts over the high pressure on the exchange rate at the year’s end.
Therefore, to remedy the situation, the central bank would dictate stricter conditions on those wanting to take out loans in foreign currencies.
The central bank also confirmed to monitor the exchange rate in September-December period towards stability, allowing Vietnam dong to weaken by no more than 1% in the last four months.
The central bank said the target was obtainable as the country’s balance of payments was expected to have a surplus of around US$2.5-4.5 billion this year.
“In all situations, the central bank has the strong capacity to intervene and stabilize the exchange rate as well as foreign exchange market,” the central bank announced.
After surging to VND21,220 at the end of last week, the U.S. dollar on the free market on Monday dipped slightly to VND21,070 for buying and VND21,150 for selling.
The average interbank exchange rate announced by the central bank still remained at VND20,628 while banks quoted the U.S. dollar at some VND20,834.