Banks to lend dong at lower dollar rates

Banks to lend dong at lower dollar rates

In a move seen for the first time in the country, many commercial banks are ready to lend in dong at interest rates charged on US dollar loans.

The aim, industry insiders and observers say, is to increase credit growth at a time the banks have been asked to limit loans made in foreign currencies through many strict conditions.

Enterprises or individuals who want to borrow money from banks for their business activities can take three or six month loans in Vietnamese dong at an interest rate of at least 7 per cent per annum, which is equivalent to the current rate for foreign currency loans.

While the repayment of the principal and interest has to be made in dong, the amount is based on the dong-dollar exchange rate when the loans come due.

Because many borrowers are still afraid of exchange rate fluctuations, some banks are also offering an exchange risk insurance service that covers a maximum of 3 per cent.

Under this arrangement, the bank will incur the borrowers'additional costs if the exchange rate is up by more than 3 per cent when borrowers have to pay back their loans.

This lending measure is expected to help banks expand their credit while the borrowers enjoy an interest rate that is much lower than the rate of normal dong loans. They however have to face the risk of exchange rate fluctuations, but this can be limited by the insurance scheme offered.

An official of the central bank told Nguoi Lao Dong (The Labourer) that the scheme did not break current legal regulations because the lenders' activities, including capital disbursement and collection of principal, interest and insurance fees, were all being made in dong.

vietnamnews