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US dollar deposit pressures opened to flood the market   2009-04-18 - VietNamNet/VIR

The State Bank has indirectly forced local banks to withdraw sizeable dollar deposits from the authority’s safe, as banks home to idle dollars are facing mounting pressure to lower dollar deposit interest rates.


Moves are afoot to take the gloss off dollar deposits

Vietinbank board of directors member Nguyen Hong Van said the State Bank’s move had “opened the gate of the dollar deposit reservoir to flood the market”. “It is a real puzzle as dollar mobilisation was already in surplus,” said Van.


Following the State Bank’s Decision 790/QD-NHNN, which took effect from April 3, the authority will pay credit institutions an interest rate of 0.1 per cent per year on excessive foreign currencies reserve requirements.


“This interest rate is too low compared to the 0.5 per cent per year previously. Banks will have to withdraw their foreign currency deposits [at the central bank] to prevent losses,” said Van.


Vietcombank’s general director Nguyen Phuoc Thanh said bank withdrawals would push dollar deposits to a greater surplus. “This would ultimately lead to a quicker pace in cutting dollar deposit interest rates,” said Thanh.


Over the first quarter, commercial banks’ dollar mobilisation grew 3.6 per cent, while outstanding credit in dollars shrank by 2.24 per cent. “This contradiction has resulted in a mounting surplus of dollar deposits,” said Duong Thu Huong, general secretary of Vietnam Banking Association (VNBA).


“Now the State Bank pays 0.1 per cent per year interest, much less than overseas banks with 0.2-0.3 per cent per year. We could consider depositing all of it in overseas banks,” said Pham Phuong Lan, BIDV’s currency trading division manager.


BIDV has over $500 million deposited with the State Bank and VNBA’s Huong estimated that all large-scale banks such as Vietcombank, Vietinbank, Asia Commercial Bank (ACB) should have a few hundred million dollars in deposits at the central bank.


Last week, a State Bank report said that the mobilisation interest rate in dollar for terms of below 12 months continued reducing by 0.1-0.2 per cent per year.


Currently, local banks are offering interest rates from 2.0-2.9 per cent per year for dollar deposits with terms from three to 12 months.

“Interest rates will fall further and would encourage local banks to buy dollar bonds in upcoming auctions,” said Huong.


In March, the Ministry of Finance brought in $230.1 million via a three-tranche $300 million bond auction at a highly appealing price of 3 per cent for one-year, 3.2 per cent for two-year and 3.6 per cent for three-year papers.

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