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Exchange-rate doubts discourage dollar loans   2010-03-26 - VietNamNet/VNA

Exchange-rate risks are discouraging most enterprises from taking out US dollar-denominated loans, despite the rising costs of borrowing in Vietnamese dong.


Lending rates for dollar loans from commercial banks currently range from 5.5 to 8 percent per year, compared to a whopping 16-19 percent per year in negotiated rates for medium-to long-term dong loans.


“The difference between the two is huge, about 10 percent,” said Asia Commercial Bank deputy director Nguyen Thanh Toai. “So, it is quite understandable that a number of enterprises are borrowing in dollars.”


But dollar loans are also harder to come by. Most lenders only take exporters and major borrowers into consideration for such loans.

And most enterprises contacted by Vietnam News said that exchange rate risks were sometimes spookier to them than high interest rates.


“We have borrowed 400,000 USD at 6.5 percent to import machines,” said Duc Viet Foods Co general director Mai Huy Tan. “The interest is endurable now, but exchange-rate risks remain an ongoing concern because it’s something we can’t gauge for ourselves.


“We only borrow dollars minimally,” said Asian Food Co general director Nguyen Van Tan, who complained that foreign exchange fluctuations had already caused the renegotiation of some contracts and made Vietnamese goods less competitive on international markets.


The central bank has depreciated gradually the Vietnamese dong against the US dollar by over 10 percent since the beginning of 2009 and one dollar now costs about 19,000 VND through commercial banks and 19,250 VND on the black market.


A senior State Bank of Vietnam official, who asked to remain unnamed, told Vietnam News, “We definitely want to stabilise the rate to support businesses and that’s what we are trying to do. But it’s really a big question because exchange-rate policy has to consider other economic factors like the wide trade deficit, smaller foreign investment capital inflows and inflationary pressures.

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