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Outstanding loans in foreign currencies not likely to increase further: expert   2010-07-26 - DTCK

Le Duc Thuy, Chair of the National Finance Supervision Council, commented that the credit growth rate of the whole banking system in the first six months was too low, especially dong credit

Chair of the National Finance Supervision Council Le Duc Thuy

 

By June 2010, credit had grown by over 10 percent, but dong credit rose only 4.5 percent, while foreign currency credit had risen by 27 percent. Will the high foreign currency outstanding loans growth rate put pressure on the dong/dollar exchange rate? Dau Tu Chung Khoan discussed the issue with Thuy.


Dau Tu Chung Khoan (DTCK): Foreign currency credit keeps increasing. Will it put pressure on foreign currency demand in the last months of the year, when foreign currency loans mature?

 

Le Duc Thuy: It is too early to say if foreign currency credit will increase any further. However, the balance in foreign currencies mobilized by banks (deposits in foreign currencies) has recently increased more slowly than foreign currency credit growth. The foreign currency deposit growth rate by the end of June 2010 was minus 2.5 percent in comparison with the beginning of 2010. Meanwhile, outstanding loans in foreign currencies rose by 30 percent over the beginning of 2010. This shows an imbalance between mobilized capital and lending in foreign currencies. I think that outstanding loans in foreign currencies are not likely to increase in the time to come.

 

Regarding the foreign exchange rate risk, when businesses borrow money in large quantities and the capital they need is not in foreign currencies, while they cannot earn money to pay debts, this will put pressure on foreign currency demand and on the exchange rate. However, how high the exchange rate would be still depends on the State Bank’s capability to regulate the market.

 

DTCK:  Currently, since the dong lending interest rates are overly high, businesses want to borrow money in foreign currencies. Meanwhile, banks still want to lend in foreign currencies. Do you think this is too risky?

 

Thuy: Businesspersons always want to optimize profits, however, I think that if we can regulate the dong interest rates well and if we adjust regulations relating to the interbank market as I suggested, we will be able to force dong interest rates down. Once rates drop, businesses will not insist on borrowing in dollars.

 

DTCK: What do you think should we do to ease the dong interest rate?

 

Thuy: I think that it is necessary to remove administrative barriers and unreasonable regulations to ease the rates. For example, current regulations stipulate that banks cannot use more than 20 percent of the capital they borrow in the interbank market to lend to clients. Under this regulation, the interbank market loses its role as the capital market regulator. Small banks cannot borrow capital from the interbank market, though it is cheap. They must mobilize capital from the public at high interest rates, and cannot ease lending interest rates.

 

Most especially, it will be even more difficult in the near future to expand credit, because the capital adequacy ratio will be raised to nine percent, and banks must strictly control capital use effectiveness.

 

DTCK: How will credit perform in the last months of the year? Will we be able to attain the goal of 25 percent credit growth for 2010?

 

Thuy: With the rate, I think that it is not likely that the goal can be obtained. However, we should not think too much about attaining the goal. The most important thing is whether or not businesses can borrow enough capital with reasonable interest rates. We should care about the growth of businesses and the national economy, while we should not consider the credit growth rate as a yardstick to measure the national economy.



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