Credit up, deposit down

The financial reports of local banks show that deposits in foreign currencies, mostly in U.S. dollar, declined sharply in the first quarter, while lending in these currencies shot up.

At the Bank for Investment and Development of Vietnam (BIDV), deposits in U.S. dollar fell 6.05%, while credit leapt 4.01% against early this year to more than VND96.7 trillion. Meanwhile, the Asia Commercial Bank saw its dollar deposits down 8.99%, while lending jumped by 8.19% to VND9.5 trillion.

Some other banks reported the same situation, including Military Bank and LienVietPostBank. At the Bank for Foreign Trade of Vietnam, mobilization inched up 0.5% compared with the beginning of this year to VND134.9 trillion. However, its dong lending rose just 5.3% compared with an 11.5% increase in lending in U.S. dollar and other foreign currencies.

According to an April report of the National Financial Supervisory Commission, mobilization from economic organizations and individuals had gained 3.5% versus the end of 2017, way above 2.8% in the same period of the previous year, when mobilization had advanced 3.7% in dong but dipped 3.1% in foreign currencies.

At the end of April, local banks’ dong credit growth was expected to be 4.1%, while that of foreign currencies was projected at 6.3%.

According to a research team at BIDV, foreign-currency lending rose sharply in 2017, with a growth rate reaching 18% at the end of last year.

Regarding the reasons for the surge, BIDV’s experts said the State Bank of Vietnam had officially extended a policy allowing exporters to take out loans in foreign currencies for another year instead of ending it on December 31, 2017. Further, the forex market had stabilized, with the dong-U.S. dollar exchange rate making insignificant movements.

Many bank officials expect the dollar mobilization rate to remain at 0% this year. Enterprises still favor dollar-based loans due to low lending rates, ranging from 2.8% to 4.7% per year for short-term credits to 4.5% to 6% for medium- to long-term loans, compared with dong lending rates of 6% to 9% per year and 9% to 11% per year, respectively.

Forex shock concerns

Although enterprises are benefiting from low-rate dollar credits, many economic experts have warned of a shock to the forex market due to forex volatility at commercial banks.

Ngo Dang Khoa, country head of Global Markets at HSBC Vietnam, noted that the U.S. Federal Reserve is sticking to its interest rate hike roadmap, while the greenback has grown firmer given accelerating U.S. government bond yields. Therefore, the dong-U.S. dollar exchange rate will see an inevitable impact from global market volatility.

In addition, domestic factors such as seasonal demand for foreign currency payments, trade surpluses and foreign capital withdrawals in May have sent the dollar price soaring, he said.

A bank official, meanwhile, pointed out that dollar credit borrowers still enjoy advantages in spite of the forex fluctuations, explaining that the difference between dong and dollar lending rates was around 4% compared to the dollar price adjustment of 1-2% per year.

However, the firmer dollar price on the global market and rate hike pressure may have an impact on corporate borrowers of U.S. dollars. In the coming period, enterprises will face risks if the dollar price and lending rate increase, the banker said.

Khoa of HSBC Vietnam advised businesses to access different credit products to avoid forex shocks and stabilize their operations.

SGT