Preference for dollar loans boosts credit growth

Monday, Nov 24, 2014 08:13

Companies prefer borrowing in foreign currency than the dong, with banks' foreign currency credit growth topping 20 per cent as of October. — Photo ndh


Companies prefer borrowing in foreign currency than the dong, with banks' foreign currency credit growth topping 20 per cent as of October.

The sharp increase has played a significant part in increasing the overall credit growth to 8.63 per cent.

Besides the usual reasons of stable exchange rates and lower interest on foreign currency loans — US dollar loans, for instance, now carry a 3-5.5 per cent rate compared to 7-10 per cent on dong loans — the central bank's recent policy of allowing more categories of borrowers to borrow in foreign currencies is one more reason.

Many banks are sitting on lots of cash and are under huge pressure to make profits to achieve their targets.

Industry insiders said many banks have seen foreign currency credit growth rates of 20-30 per cent this year. But they predicted this to continue increasing in the last two months of the year since businesses' demand for import of feedstock and raw materials to produce for export and for Tet (Lunar New Year) early next year is set to rise.

A major worry, obviously, is the exchange rate between the dong and the greenback.

In recent days the dong has been weakening. On November 18 Vietcombank quoted buying and selling rates of VND21,330 and VND21,390 per dollar, up by VND20 from the previous day. A day later they went down further to VND21,360 and VND21,420.

Other analysts also fear that the loosening of foreign currency lending would increase the use of dollars in the economy.

The State Bank of Viet Nam has dismissed all these fears, saying that banks lowered the dong's rates due to unfounded rumours that the central bank might devalue the currency.

To calm nerves, it also said that the current exchange would be maintained.

It assured that despite the rapid growth foreign currency loans remain at reasonable levels, accounting for only 15 per cent of total loans.

In fact, in the context of the banking sector's slow credit growth, it is a good sign indicating that the country's foreign trade activities remain robust.

Online shopping

Online shopping is growing rapidly in terms of both the number of transactions and their value not just in major cities like Ha Noi and HCM City but also in other cities and many provinces.

According to some e-commerce players, Ha Noi and HCM City now account for only 55 per cent of the total online orders, with the remaining 45 per cent coming from provinces., an online vendor, said Ha Noi and HCM City account for only 46 per cent with the other 54 per cent coming from elsewhere.

Da Nang and Can Tho cities and Lao Cai Province have achieved the fastest growth in recent times, especially in sales of big-ticket items like LCD and LED television sets.

Even a few months ago the most common purchases by customers in provinces were low-value items like mobile phone covers, backpacks, and handbags.

The number of regular online shoppers has also gone up significantly in provinces and smaller cities.

It was not as if the provinces did have online shopping demand in the past. The hurdle rather was that e-commerce companies did not have delivery networks large enough to meet this demand.

Many had been depending on delivery services of VNPost, ViettelPost, and others to serve customers in remote provinces like Hai Duong, Phu Tho, An Giang and Ca Mau, resulting in high risks for both sellers and buyers.

Then, inspired by the strong development of online shopping in these places, sellers switched to cash on delivery (COD).

Now buyers were protected against non-delivery after payment and possible litigation to get their money back, allowing them to confidently order all kinds of products.

Anxious investors

Early last week there were rumours that the amount that banks could lend for margin buying of securities would be capped at 5 per cent of their capital.

It made many investors anxious.

But there has been no official word that this is about to happen. Besides, the State Securities Commission has indicated that it does not plan to amend any regulation until the end of this year.

Existing regulations are in any case good enough to ensure that securities companies operate transparently and ensure their financial safety.

The companies are required to scrupulously comply with three important documents — Circular 226/2012/TT-BTC, circular on risk management, and statutes on classification of securities companies based on the CAMEL rating system.

Besides, they have to make periodic reports about certain operations, especially margin buying by clients.

In other words, the State Securities Commission has enough tools to evaluate securities companies' financial capacity and control money banks inject into the markets.

With the three documents tightening margin regulations, securities companies, unlike a few years ago, cannot compete for clients based on the high margins they can offer.

Nevertheless, analysts favour capping the margin lending at 5 per cent of banks' capital to further improve the safety of the system.

This would not however, affect investors, they hasten to add, assuring it would not make it difficult for them to obtain margins.

According to the State Securities Commission, the total margin outstanding was around VND17 trillion (over US$8 billion) as of October after rising 10-15 per cent a month on average since July.

This amount includes both the money securities companies' lend from their own funds and from loans they get from banks.

Meanwhile, banks have a combined capital of VND450 trillion, and 5 per cent of that would be VND22.5 trillion, leaving a lot of slack to be picked up before hitting the 5 per cent ceiling. — VNS

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