The fact that the State Bank of Vietnam has set up the interest rate ceiling on dollar deposits at 2 percent, to be applied to individual deposits and 0.5 percent to institutional deposits; plus the measures to strictly control the foreign exchange market, have brought fat profits to some banks and big worries to others. Exchange rate down, making bankers happy

After June 2, when the State Bank of Vietnam set the interest rate ceiling on dollar deposits, the dollar prices posted by commercial banks have been decreasing. On June 7, the interbank exchange rate was 20,628 dong per dollar, the deepest low since the dong/dollar exchange rate adjustment was announced on February 11. Most of big commercial banks quoted the sale prices at below 20,600 dong per dollar. Vietcombank purchased at 20,540 dong per dollar, while ACB quoted the lower price at 20,500 dong per dollar, and other banks, namely Sacombank and Eximbank, quoted even lower prices. The black market prices were lower than the bank prices. Many exchange centers collected dollars at 20,450 dong per dollar. The lower dollar interest rates plus the dollar price decrease both have led to the more profuse dollar supply. A lot of people have been rushing to sell dollars after hearing that the dollar supply has been improved, while they find it no longer attractive to deposit dollars at banks, because the dollar deposit interest rates have been decreasing dramatically. My Phuong, a client at Asia Commercial Bank (ACB), said that she previously planned to sell dollars when the dollar prices increase. However, it seems that the dollar price tends to decrease, and she has decided not to wait any longer and sell dollars right now. Managers of the bank have confirmed that the number of clients who sell dollars to make dong deposits has increased considerably. The same situation can be seen at Dong A Bank. A manager of the bank said the majority of clients have deposited dong at the bank after they sold dollars, which has helped improve the dong liquidity. Worries raised about profit decreases and liquidity risk While some banks feel happy with the improved dollar supply and dong liquidity, other banks, which accidentally provided high dollar outstanding loans, now feel worried sick, because the current foreign exchange policy may make their profits lower than expected. Only the banks which have big dollar deposits and have competitive interest rates can attract the dong deposits from the individuals and enterprises which sell dollars. Meanwhile, small banks, especially the ones, which have overly high dollar outstanding loans, are facing high risks. “Since people sell more dollars to banks and deposit dong at banks, small banks and the banks which commit big dollar loans, will not have much money to mobilize,” deputy general director of a big joint stock bank in HCM City said. The banker also believes that the liquidity difficulties will be the problem the banks will have to cope with in the time to come. According to the HCM City Statistics Office, the total outstanding loans of banks in HCM City had reached 383.1 billion dong by the end of May, of which the outstanding loans in foreign currencies account for 30 percent. “This has made the risks of banks increase,” said Nguyen Thi Mui, Member of the National Advisory for Monetary Policies “Dollar loans’ interest rates are hovering around 6-7 percent, but it is not easy to mobilize dollars and dong at this moment,” she explained. “I am sure that the profits from foreign currency trade will significantly decrease,” she said. “Since lending in foreign currencies is not a lucrative business any longer, banks would shift to trade foreign currencies. However, the possibility of taking losses is high,” said Le Tham Duong, a well known economist. Dat Viet