The Government has set a target for reducing foreign currency mobilization and ending foreign currency lending to fight dollarization, news website Thanh Nien reported, citing the Government’s Decision 986.

The Government has set a target for reducing foreign currency mobilization and ending the provision of foreign currency loans to fight dollarization

In executing strategies for Vietnamese bank development until 2025 with a vision toward 2030, the immediate goals are to gradually reduce the number of foreign exchange transactions, achieve a ratio of foreign currency deposits at less than 7.5% of the total in 2020 and at 5% in 2030, and stop foreign currency lending by 2030.

The State Bank of Vietnam (SBV) is in the process of actively curbing dollarization in the economy until 2020.

Recently, the growth of foreign currency borrowing and lending in the banking system has declined rapidly. In 1992, banks saw foreign currency deposits amount to 41%. The figure seemed to be stable at 20-30% a few years later.

Since the application of zero-percent interest on U.S. dollar deposits in 2015, dollar deposits have fallen from 11.06% in 2014 to 8.21% of the total deposits at end-2017, paving the way for SBV, the central bank, to purchase a large amount of foreign currency and achieve foreign exchange reserves of a record US$64 billion.

According to SBV, inflows of foreign indirect investment (FII), foreign direct investment (FDI) and overseas remittances have not been negatively influenced by the policy on zero-percent interest on U.S. dollar deposits. Incoming remittances amounted to US$9.84 billion in 2017, up 10.76% year-on-year, while FII and FDI disbursements rose, with FDI disbursement amounting to US$17.5 billion.

Financial expert Nguyen Tri Hieu said the plan to curb foreign currency deposits is appropriate as it is impossible to completely eliminate foreign currency in payments within the next 10 years. Foreign currency mobilization will continue if banks keep lending in foreign currency but halting lending will not necessarily stop the mobilization.

Hieu explained that stopping foreign currency lending will only help banks reduce mobilization.

Dr. Bui Quang Tin, a teacher at Banking University of HCMC, proposed not removing foreign currencies as the interest rates on U.S. dollar loans reach 2.8-6% per year, less than half the rate for dong-based loans, attracting exporting firms to borrow foreign currency from banks to reduce their costs.

A representative of SBV pointed out that with its antidollarization goal, SBV will introduce some changes to adjust the market and then proceed with the plan to stop foreign currency lending.

Hieu suggested maintaining the lending of foreign currencies for one more year to support exporting firms competing with international enterprises in light of the complicated changes to the world’s economy these days.

SGT