VietNamNet Bridge – Foreign currency credit has fallen and is expected to continue declining in the coming time as a number of enterprises have converted their foreign currency debt into Vietnam dong.

Pham Hong Hai, chief executive officer of HSBC Vietnam, told the Daily on the sidelines of a recent conference on HCMC’s banking system in the city that many businesses have converted their foreign currency debt into that in the Vietnam dong currency and that total outstanding loans in foreign currency will likely edge down.

Some companies affirmed the fact. Cao Tien Vi, general director of Saigon Paper, said earlier that the firm was considering turning foreign currency loans into those in dong though it has to pay higher interest.

Data of the central bank’s HCMC branch showed that total outstanding loans in foreign currency had exceeded VND137.8 trillion (US$6.1 billion) by end-2015, accounting for 11.2% of the total and down 16.23% year-on-year.

The reason behind a drop in foreign currency credit was the volatile exchange rate between the Vietnam dong and the U.S. dollar. It rose by 5% last year so importers have reduced their foreign currency loans to minimize their exposure to exchange rate volatility.

Hai of HSBC Vietnam said if the U.S. Federal Reserve continues to raise interest rates this year and if interest rates in the Vietnam dong stay unchanged, pressure on the dong-dollar exchange rate would mount.

China lets the exchange rate move in tandem with supply and demand. Therefore, Vietnam should expect fluctuations of the dong-dollar exchange rate this year.

He noted given zero interest rates for dollar deposits, a number of customers converted their dollar deposits into the domestic dong to enjoy higher interest rates. Some others keep depositing dollars at banks as a safe haven.

The gap between the dollar interest rate in Vietnam and world markets is not big. However, if the Fed revises up rates in the coming time, some individuals and organizations will find ways to benefit from the Fed’s rate hike.

Tran Thu

SGT