The State Bank of Vietnam has sighed with relief when the dong/dollar exchange rate adjustment and with a series of measures taken, has forced the dollar prices down and stabilized the market. However, if the dollar depreciates further, this may cause problems in long term.

The Vietnam Banking Association (VNBA) has sent a document to the State Bank of Vietnam (SBV), warning that the “de-phasing” between the capital mobilizations and lending in foreign currencies may cause big difficulties to commercial banks in the time to come.

The association has also warned that the sharp appreciation of the Vietnam dong in recent days has led to the hot growth of the credit in foreign currencies. This should be seen as a worrying problem for the future, and this would make the trade deficit worse.

In conclusion, VNBA has proposed the central bank not to let the dollar price decrease any further.

The interbank dong/dollar exchange rate has been staying at the deepest low since the latest exchange rate adjustment on February 11, at 20,618 dong per dollar.

According to the SBV, the foreign currency market has seen positive changes recently after a series of measures have been taken. On the black market, the dong/dollar exchange rate has been put under control, and there has been nearly no transactions. The quietness on the black market has forced the dollar price on the market down to the levels lower than the exchange rates quoted by commercial banks.

However, the continued decreases of the dollar prices in recent days have caused the worry that they may lead to the increases of credits in foreign currencies.

The statistics released recently show the tendency of businesses shifting to borrow foreign currencies instead of Vietnam dong because of the big gap between the dong and the dollar interest rates. Businesses would prefer borrowing in dollars to enjoy low interest rates, while they do not face the high risks in the exchange rate.

The reports by credit institutions show that in the first five months of 2011, the liquidity in foreign currencies of the institutions has been ensured, but the credits in foreign currencies have increased significantly. By May 23, 2011, the outstanding loans in foreign currencies provided by banks to the national economy had increased by 18.9 percent, while the dong outstanding loans had increased by 2.59 percent.

It is clear that there has existed a big gap between the foreign currency credit growth rate and dong credit growth rate. Experts have warned that the increasingly high credits in foreign currencies have increased the risks for the banking system and the national economy. When the foreign currency bank loans come mature at the same time, this would be a hard pressure on the dollar supply and the exchange rates.

In the report made to serve the meeting of the National Advisory Council for the Monetary Policies recently, the Ministry of Planning and Investment also gave warnings about the foreign currency credit increases.

In principle, the dollar depreciation would bring disadvantages to export and facilitate the import, which is clearly not a good thing for an economy with big trade deficit like Vietnam.

There has been no clear evidence about the impacts of the appreciating dong on the trade deficit recently. However, it is worth of thinking about, when the trade deficit in May reached 1.4 billion dollars, equal to 22.7 percent of the export turnover, which was the highest trade deficit level in the first five months of the year.

The trade deficit in the first five months of the year has reached 6.6 billion dollars, or 19 percent of the export turnover, higher than the targeted level of less than 16 percent. It is expected that the figure of the first half of the year would be 7.5 billion dollars.

The big gap has also existed in the interest rates of dong and dollar deposits. According to the State Bank, the capital mobilization growth rate is 1.48 percent on average, while the mobilized capital in foreign currencies rose by 18.84 percent, while the dong mobilized capital dropped by 2.75 percent in comparison with that in late 2010.

The decreases in the dong mobilized capital have been thought as originated from economic institutions, estimated at 156 trillion dong. The increasing lending interest rates have forced enterprises to withdrawn money to organize production and business.

Minh Son