Dollar credit growth safe: SBV

Head of the central bank's money policy department Nguyen Thi Hong made the confirmation to the local press on July 6.

Ministry of Planning and Investment statistics showed that credit in foreign currencies grew by 10.51%, while the growth of dong loans was only 0.68% as of June 20.

Hong listed three factors that are supposed to ensure the liquidity of foreign currencies, in a response to an earlier report of the National Financial Supervisory Council which said that credit in foreign currencies was bearing certain pressure.

Firstly, the dollar loans in May increased by 9.35% against the end of 2013, but increased by 1.34% only, year over year.

Secondly, taking into account all deposits and savings from domestic accounts and other capital sources, the ratio of dollar spending is only between 50% and 60%.

Thirdly, most of the dollar borrowers are companies which have shown proof of having dollar resources to repay the loan. Otherwise, dollar loans are only granted to companies in priority sectors such as exports, agriculture, hi-tech applied agribusiness and auxiliary industry.

"While the overall credit growth is low, the central bank flexibly allows commercial banks to expand credit in foreign currencies," Hong said.

The State Bank of Vietnam (SBV) reported that the overall credit growth in the first six months was 2.3%. The banking system now has six more months to achieve 12% credit growth by the end of the year.

Hong said that credit in foreign currencies significantly contributed to the overall credit growth. In May 2014, Hong said if dollar loans had not increased by 9.35%, the entire credit would not have reached 1.51%.

SBV reports showed that the borrowing costs of dollar loans were 3 to 4 percentage points lower than that of dong loans. This has been blamed for the steady increase of dollar loans.

The annual interest rates charged over privileged loans hover around 7% to 8%. For manufacturing sectors, the rates are 9% to 10% for short-term loans and 10.5% to 12% for mid- and long–term loans per year. For dollar loans, the popular lending rates are between 3% to 7% annually.

Although the recent rise of foreign credit is in line with the State Bank's direction, Hong said that the bolstering by dollar loans was a short-term policy.

The central bank will go ahead with measures for de-dollarisation of Vietnam's economy. In the coming weeks, SBV will closely supervise credit growth, especially dong loans, to make proper adjustment.

Economists have urged the central bank to cut the dong interest rate further, in order to ease the capital cost burden on businesses. The bank said it would take time to consider the issue thoroughly for the sake of the dong position in the long run.

Last week, Pham Xuan Hoe, Deputy Head of the central bank's Monetary Policy Department, said that the total capital supply increased by 6% as of June 25. Roughly 87% to 90% of the capital resources in banks went to Government bonds and State Treasury bills, though they should go towards supporting economic recovery instead.