15:33 | 21/04/2016 Finance - Banking
Viet Nam saw US dollar deposits overseas skyrocketing, possibly due to foreign currency policies implemented by the central bank, the Việt Nam Institute for Economic and Policy Research (VEPR) said.
According to a report released this week, the think-tank said Vietnamese deposits overseas, which were previously negligible, was US$7.3 billion till the third quarter of 2015 — Photo tuoitre.vn
According to a report released this week, the think-tank said Vietnamese deposits overseas, which were previously negligible, was US$7.3 billion till the third quarter of 2015.
While direct and indirect investments remained little changed, the outflow caused the overall balance of payments to post a deficit of $6.6 billion in Q3 of 2015, the report said, adding this could be seen as a forex "liquidity trap" in the local banking system.
According to the report, the absence of an effective dollar trading market, coupled with the zero-per cent interest rate on dollar deposits, had prompted many people to deposit their foreign currency abroad at low interest rates while domestic banks had to borrow from foreign banks at higher interest rates.
The report also said the low interest rates for both deposits and loans in dollars, together with expectations of the dong‘s devaluation following the devaluation of the Chinese yuan, had prevented banks from finding borrowers for dollars. As a result, depositing foreign currency in foreign banks had become the most profitable solution.
If this theory is proved to be true, the amount of deposits overseas will continue to rise, the report said.
While agreeing that the curbing of dollarisation was the correct move by the central bank, the report said more synchronous solutions were needed to enhance trust in the domestic currency. Only then could the economy utilise the large amount of foreign currency that the Vietnamese were now depositing overseas.
Dong interest rate
According to the report, the VEPR said the demand for capital mobilisation had increased at commercial banks, pushing up the interest rate in both the lending market and the inter-bank market. After rising significantly last year, capital mobilisation in the first quarter this year continued to increase by 2.26 per cent compared to the same period in 2015.
The think-tank explained that high demand for mobilisation was to prepare capital for the ambitious credit growth plan of the banking system in 2016, partly to meet the demand for medium and long-term capital, which had been reduced from 60 per cent to 40 per cent under a provision in Circular 36.
The interest rates for mobilisation for inpidual customers at commercial banks had reached the ceiling of 5.5 per cent per year as regulated by the central bank. The inter-bank interest rate also increased by 1-2 per cent on average compared to the 2014-15 period, the VEPR reported./.