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Foreign currency credit still be attractive to businesses in 2012   2012-02-01 - TBKTVN

Borrowing money in foreign currencies, especially in dollars, would still be the attractive choice for the businesses in 2012, analysts say.

The diagram shows the foreign currency credit growth in recent years

At a meeting with the press in late 2011, the director of a branch of Eximbank in the south, said that the number of clients who are the businesses borrowing capital from the bank branch has been increasing rapidly.

The increases have been attributed to the launching of the new product package reserved for clients – businesses only, which comprise the foreign currency credit with special competitive edges.

With the preferential credit package reserved to boost export, export companies can borrow foreign currencies at low interest rates, while enjoying a mechanism which allows to minimize the exchange rate risks. Under the program, businesses can borrow dollars at the interest rate of five percent per annum, which is much lower than the current market interest rates of 6-9 percent.

Besides, in order to help businesses stabilize the capital costs, the bank has committed to “insure” the risk in the exchange rate fluctuations, in case the dollar price increases by over one percent a month.

The product, right after it was launched has attracted a lot of export businesses, thanks to its low interest rates and the minimized exchange rate fluctuation risk. The product has not only led to the higher number of borrowers, but has also helped the bank popularize its associated services, including the cash flow management, import-export payment, and personal banking services to businesses’ owners.

Eximbank’s managers have said that the product aims to gather strength to support export companies - one of the priority subjects under the policy of the State Bank.

In 2011, while the total credit growth rate was low at 10.9 percent, the credit growth rate for export, in particular, was very high at 58 percent. According to the State Bank’s Governor Nguyen Van Binh, the figures show that the capital flow has been successfully driven to the needed. As export companies got the strong support from commercial banks, the exports made a new record in 2011; thus helping reduce the trade deficit.

The attractiveness of dollar loans has also been explained by the big gap between the dong and the dollar loan interest rates. The dollar interest rates are ranging between six and nine percent per annum; much lower than the dong interest rates of 18-24 percent per annum. Meanwhile, the dong/dollar exchange rate has been forecast to become stable in 2012 with the possible dollar price increases of no more than 3 percent.

Therefore, it would be a wise move for businesses to borrow dollars at low interest rates, and then convert into dong to use as working capital. The low capital cost would help businesses improve their competitiveness in the world market, or serve their plans to expand business.

It is expected that the gap between the dong and the dollar loan interest rates would still be big enough to maintain the attractiveness of dollar loans.

In 2011, the State Bank applied the measures to put a brake on the growth of the dollar credit. Dollar loans were mostly provided to export companies and the businesses which can prove that they have earnings in dollars to pay debts. The measures helped ease the pressure on the foreign currency demand, thus allowing to avoid the pressure on the exchange rate when loans become due.

The statistics show that the foreign currency credit has been stabilized again after the boom period in 2010.

The statistics show that the foreign currency growth rate decreased from 48.45 percent in 2010 to 18.7 percent in 2011 which is marching closer to the levels of 15.12 percent and 17.61 percent in 2009 and 2008, respectively.

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