Banks strengthen control of foreign exchange market

(Baonghean) -Immediately after issuing Circular 09/2011 regulating the maximum interest rate for capital mobilization in US dollars, the State Bank of Vietnam continued to strengthen foreign currency management with Circular 07 regulating foreign currency lending by credit institutions to borrowers who are residents. Circular 07 officially took effect from May 9 and is considered to have many new points compared to previous regulations, creating more favorable conditions for both banks and enterprises, "cooling down" the foreign currency market which has been quite tense in recent times.

In accordance with the spirit of Decree 11 of the Government on tightening the credit market, curbing inflation, in the face of the chaotic free market of foreign currencies, Circular 07 was issued, stipulating that credit institutions licensed to operate in foreign exchange consider deciding to lend capital in foreign currencies to customers who are residents. Specifically, short-term, medium-term and long-term loans for overseas payment of imported goods and services where the borrower has foreign currency to repay the loan from production and business revenue, purchases from the lending credit institution or other credit institutions must be committed in writing. This is a new point, stricter than the previous Decision 09 (previously there was no commitment to repay the debt). Short-term loans to implement the plan to produce and trade exported goods through Vietnam's border gates and borders where the borrower has enough foreign currency to repay the loan from export revenue; In case a customer borrows in foreign currency for this capital need for domestic use, the customer must sell the foreign currency loan book to the lending credit institution in the form of spot exchange transactions.

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According to Circular 07/2011/TT-NHNN, banks are only allowed to lend foreign currency if customers commit to having foreign currency to repay the debt. The regulation does not prohibit importers from borrowing, but if they want to borrow, they must meet conditions. Meanwhile, importers only have foreign currency income in the case of temporary import and re-export. On the bank's side, if they want to lend to businesses, they must commit to selling foreign currency so that the business can repay the debt on the due date. That means the lender must jointly pay the debt with the borrower. Thus, when lending, banks not only look at the mobilized USD capital, but also have to balance current and future commercial foreign currency sources to avoid risks.

Thus, in addition to the ceiling on deposit interest rates for USD to only 3%/year and the increase in required reserves by 2% for foreign currency deposits, people do not want to hoard USD. Because at this time, with the ceiling interest rate applied to foreign currency deposits reduced from the highest level of 6.5%/year to 3%/year, many customers have switched to VND to save and enjoy interest rates of up to 17 - 18%/year. In particular, when the exchange rate on the free market gradually stabilizes and is pulled closer to the official listed exchange rate in commercial banks, holding USD will no longer be beneficial. There is no longer foreign currency tension, free market activities have calmed down and banks have more opportunities to increase required reserves for foreign currency. Accordingly, businesses also have an easier time when there is a need for import-export payment activities.

At Vietcombank, after Circular 09 regulating the maximum interest rate for capital mobilization in US dollars and Circular 07 regulating foreign currency lending by credit institutions took effect, the USD mobilization level at this Bank decreased sharply but the purchase turnover increased sharply, the foreign currency supply was abundant, contrary to the thinking of many people that, with the required reserve ratio for foreign currency deposits increased by 2%, banks would find it difficult to increase foreign currency lending, this led to the capital mobilization in foreign currency of banks, which was already difficult, becoming even more difficult.

According to data from the State Bank of Vietnam, Nghe An Branch, as of April 30, capital mobilization in foreign currency in the area reached VND4,320 billion, an increase of VND255 billion compared to the beginning of the year, equivalent to 6.3%. Foreign currency lending reached VND4,159 billion, an increase of VND278 billion compared to the beginning of the year, equivalent to 7.2%. Thus, foreign currency debt is only 8.2% of total debt. Compared to many localities such as Hanoi or Ho Chi Minh City, the "demand" for foreign currency in Nghe An is not large, and with these two new circulars, USD flows into banks simultaneously, and import-export enterprises in Nghe An generally no longer worry about foreign currency shortage.

Ms. Nguyen Thi Thu Thu - Deputy Director of the State Bank of Vietnam, Nghe An branch, said: With the regulations issued in the Circular, it is a necessary measure to implement monetary solutions to curb inflation, stabilize the macro economy, reduce dollarization in the market, gradually shift the domestic USD mobilization - lending relationship of credit institutions to foreign currency buying - selling relationship, foreign currency mobilization and lending activities will decrease. In particular, with Circular 07, it is also a move to limit the trade deficit of unnecessary goods, contributing to curbing current inflation.

Thu Huyen