VietNamNet Bridge – Commercial banks’ coffers have been filled with foreign currencies which cannot be disbursed because of the lack borrowers, even though it is now the high season.

In principle, the demand for foreign currency loans increases sharply in the last months of the year, when enterprises import materials for domestic production, while trade companies import products for the Tet sale season.

Nevertheless, businesses still keep indifferent to the loans in foreign currencies offered by banks, though Tet is nearing.

Phan Huy Khang, General Director of Sacombank, said the bank’s foreign currency outstanding loans have dropped by 30 percent in comparison with the beginning of the year.

Khang attributed the sharp fall in the foreign currency outstanding loans to the new regulation set by the State Bank, which says only the enterprises which have the incomes in foreign currencies, can borrow in foreign currencies.

The same thing is happening with other banks. Pham Hong Hai from HSBC Vietnam noted that the demand for capital in general and foreign currency capital is particularly weak. Besides, businesses now tend to borrow dong instead of foreign currencies to avoid the exchange rate fluctuation risks.

The dong interest rates have become “very reasonable,” at 6-8.5 percent per annum, not much higher than the dollar interest rates at 3-7 percent, which makes it more attractive for businesses to borrow in dong.

Nguyen Hoang Minh, Deputy Director of the HCM City branch of the State Bank, confirmed that the local banks’ foreign currency outstanding loans dropped by 20.57 percent in the first 10 months of 2013.

As the demand for foreign currency loans is weaker, the demand for foreign currency purchase has also decreased by 30 percent, because businesses don’t need to buy foreign currencies to pay bank debts.

The sharp fall in the demand has led to the prediction that the dollar deposit interest rate may drop to zero percent. Businesses would rather buy dollars from banks when they need, instead of borrowing.

Banks now pay 0.25 percent per annum for the deposits from institutions and 1.25 percent from individuals. Under the current regulations, banks can convert foreign currencies, equal to 20 percent of their capital, into dong for lending.

Analysts believe that the demand for foreign currency loans gets weaker because of the worse health of businesses.

According to Do Duy Thai, General Director of Viet Steel Corporation, in normal conditions, steel mills have to import materials in big quantities in early December.

In previous years, Thai said, Viet Steel and other steel manufacturers found it very difficult to borrow foreign currencies to import materials. However, they are not “busy” this year because of the forecast about the continued weak demand for building materials in 2014.

“We need to reduce the inventory level to cut down expenses, therefore, we decided to order less material imports,” Thai explained. “Our demand for dollar loans has dropped by 30 percent.”

Cao Tien Vy, General Director of Saigon Paper JSC, said there is no sign showing the improvement in the consumption in the last month of the year. This explains why businesses only make enough products for sale and don’t keep products in stock.

Tien Phong