Banks stop offering medium-, long-term foreign currency loans
Banks stop offering medium-, long-term foreign currency loans
Local banks stopped offering medium- and long-term foreign currency loans today, October 1, as part of the State Bank of Vietnam’s plan to tighten control over these loans and prevent dollarization in the economy.
Enterprises, in response to the latest announcement, said that they may face obstacles as a result of the decision, while representatives of the banking sector said that the suspension would not affect corporate operations.
Nguyen Van Kich, board chairman of Cafatex Corporation, was cited by Thanh Nien newspaper as saying that the move was unexpected, as interest rates for U.S. dollar loans are lower than those for Vietnamese dong loans.
When importers have to switch from taking out U.S. dollar loans with an annual interest rate of 4% to taking Vietnamese dong loans with interest rates of up to 8%-9% per year, their borrowing costs will double. This has prompted them to revise their product prices, resulting in possible hikes in the prices of imported goods.
As the regulation was discussed years ago and the central bank has extended dollar lending multiple times, the Cafatex chairman expected it to be executed later, at a more appropriate time.
With low interest rates being applied in many countries and imported goods being priced lower than locally made items, local firms will struggle to compete in global markets if they are required to get Vietnamese dong loans at higher interest rates, said Kich.
Tran Thi Nguyet Oanh, director of Corporate Banking in the south at HSBC Vietnam, was cited by Thanh Nien newspaper as saying that the regulation, on taking effect, will restrict the foreign currency borrowing of importers to serve domestic demand.
Even though the interest rates for Vietnamese dong loans remain higher than those for greenback loans by roughly 2%-3%, companies’ borrowing costs in Vietnamese dong will rise only slightly as they can sell foreign currencies in exchange for Vietnamese dong, with the fluctuation of the dong exchange rate at some 1%-2%, she added.
The introduction of the regulation to gradually curb foreign currency lending has not affected companies much as it was planned in great detail, allowing companies to adjust their business plans, said the corporate banker.
Earlier, on March 31, local banks had stopped offering short-term foreign currency loans.
