VN central bank urged to speed up fight against dollarization

  • by VNBUSINESS
  • January 03, 2019

With Circular 42 issued on December 28, 2018 which replaced Circular 24, the State Bank of Vietnam (SBV) tightened lending in foreign currencies in an effort to ease dollarization.

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SBV has been urged to stop lending transactions in US dollars

Under the banking sector development strategy by 2025 approved by the Prime Minister, Vietnam will stop dollarization in the national economy by 2030. 

SBV has many times intended to stop lending transactions in US dollars, but the plan was delayed. In the latest move, SBV once again delayed the ban on borrowing in dollars, but tightened lending.

Under the new circular, short-term lending for import goods/services for domestic consumption can be implemented until the end of March 31, 2019. Medium- and long-term lending to make payments for imports will be allowed until the end of September 30, 2019. 

Short-term lending to pay for expenses for production and trade of export products in Vietnam will face no limitations.

According to the National Finance Supervision Council, by the end of May 2018, Vietnam dong outstanding loans amounted to 91.9 percent of total loans, while the loans in foreign currencies were 8.1 percent. 

According to the National Finance Supervision Council, by the end of May 2018, Vietnam dong outstanding loans amounted to 91.9 percent of total loans, while the loans in foreign currencies were 8.1 percent. 

A report from SBV showed that in late November 2018, the short-term dollar lending interest rate was 2.8-4.7 percent, while the rate for medium- and long-term loans was 4.5-6 percent.

As for dong loans, the interest rate was around 6-9 percent per annum for short-term loans and 9-11 percent for medium- and long-term loans. The gap between the dong and dollar interest rates is 3.5-5 percent per annum.

Huynh Buu Son, an economist, commented that lending in dollars should have been stopped a long time ago. 

Vietnam, with its own monetary policy, maintains an interest rate which is relatively high if compared with other regional countries. But this must not be the reason to continue allowing loans in dollars.

He said that Vietnam has integrated more deeply into the world, but needs to be cautious when providing dollar loans, or it may violate regulations in international trade. 

Le Dang Doanh, former director of the Central Institute of Economic Management (CIEM), agrees that the use of foreign currencies is put under strict control in other countries.

Bui Quang Tin from Bizlight School disagreed with the opinion that the limit of foreign currency loans would make the dong interest rate escalate. He said the dong interest rate depends on many factors, including the deposit interest rate, banks’ operation costs, the risks of business projects, collateral and client profiles.

Source: Vietnamnet

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