According to the central bank’s HCMC branch, dollar credits of banks in the city slumped 14.9% in the period. Earlier, a report of the central bank showed that foreign currency credit of the entire banking system dropped 8.41% by late May while the dong credit increased 5.48%.
Banks blamed the new regulations in foreign currency lending effective since early this year as the cause of the dollar credit decline. Dong lending rates have also declined strongly in recent time, encouraging enterprises to take out loans in the local currency.
Under the Circular 37/2012/TT-NHNN, only enterprises with earnings in foreign currencies are qualified for taking out foreign-currency loans at banks. The only exception is for oil and gas imports.
Tran Ngoc Tam, deputy general director of NamA Bank, said that the circular has eliminated importers out of the list of qualified borrowers of foreign currency credits. These enterprises now have to take out dong loans and then buy U.S. dollars to import goods.
But the striking factor behind the falling dollar credit is the falling interest rate on Vietnam dong loans. Enterprises with good business results and relationship with banks have seen no clear difference between dong and dollar loans at present.
Do Duy Thai, general director of Viet Steel Corporation, said that it was better to ask for dollar loans last year as dong lending rates were very high then while the exchange rate was stabilized for the whole year. But the story is different now when dong and dollar lending rates are mostly the same.
Viet Steel Corporation has taken out short-term dong loans with interest rates from 5.5-6% per annum. Meanwhile, banks are applying foreign-currency lending rates from 4-6% per annum. Given exchange rate risks, dong and dollar loans are the same, Thai said.
To Nghi, deputy general director of Eximbank, said that enterprises do not have stable foreign currency incomes so they are reluctant to ask for dollar credits.
Meanwhile, Pham Linh, deputy general director of Orient Commercial Bank, said that local exporters have been hurt by economic difficulties of key export markets such as the European Union (EU) and the U.S.
The demand for dollar loans will decline if enterprises run poor business. However, as the U.S economy is recovering, local enterprises are expected to see better operations in the second half of this year, meaning the demand for dollars may increase thereafter.
Meanwhile, dollar mobilization at banks has also declined given low interest rates.
The HCMC branch of the central bank said that foreign currency mobilization of local banks by late June dropped 5.3% against the end of 2012. Meanwhile, dollar mobilization, including gold, of the entire system inched up 0.84% in the first five months of 2013 compared to a 7.55% rise in dong mobilization.
The central bank said that the development went in line with its policy of fighting dollarization.