Dollar notes beng counted. The SBV ban on foreign currency loans was lifted two months after it began. — Photo Tran Viet

HA NOI (Biz Hub) — Export enterprises and commercial banks welcomed the State Bank of Viet Nam (SBV)'s decision to allow credit institutions to resume provision of foreign currency loans two months after it was banned.

Under the Circular 07/2016/TT-NHNN, which came into effect from June 1, commercial banks can provide short-term loans in foreign currency for export firms which need funds for production.

After getting the loans, exporters must immediately sell the amount of foreign currency borrowed to the lending institutions under the spot forex trading method, except in case the foreign currency will be used to make payments.

This decision will remain in effect until December 31 this year.

Truong Dinh Hoe, general secretary of the Viet Nam Association of Seafood Exporters and Producers (VASEP) that had requested the SBV to extend the foreign currency loans in early April, said the decision to issue the circular was timely and proper.

Since the operation was banned on March 31, seafood enterprises lost the chance to borrow foreign currency at low interest rates, Hoe said.

Over the past two months, firms had been worried about their source of capital and they had complained about the rise of capital costs and narrowed profits as they had to borrow loans in dong at much higher interest rates, he added.

The interest rate for a three-month foreign currency loan is currently popular at 3 per cent per year while the rates of local currency loans range between 8 and 11 per cent per year.

Nguyen Hai Nam, deputy chairman of the Viet Nam Coffee and Cocoa Association, said it was essential for the enterprises to access cheap funding through foreign currency loans because agricultural and fisheries industries needed a large amount of capital to purchase materials.

Over the past few years, foreign companies had taken advantage of cheap capital by borrowing from banks in foreign countries and then converted it to Viet Nam dong to buy materials in local markets.

Therefore, if local companies were not allowed to borrow foreign currency, they would lose in their own backyard and they would be unable to compete with foreign rivals.

Nguyen Hoang Minh, deputy director of the SBV's HCM City branch, said, at present, foreign invested companies were enjoying low lending interest rates.

Under the situation, local exporters needed to be facilitated to improve competitiveness and boost exports, Minh said.

Nguyen Duc Huong, standing deputy chairman of the Lien Viet Post Join Stock Commercial Bank (LienVietPostBank), said the new regulation not only benefitted exporters, but also helped ease the pressure on commercial banks to cut interest rates for dong loans.

Experts also hailed the policy as flexibility in the Government's management to support the enterprise community.

However, some experts raised concerns that the policy might lead to an increase in demand for foreign currency, especially the United States (US) dollar, and if the interest rates of the dollar deposits at different terms were still kept at 0 per cent, it would create a risk for banks.

Banking expert Nguyen Tri Hieu said the risk related to the "unbalance" between lending and deposit terms because most of US dollar deposits were non-term while banks lent short-term.

In fact, there were reports that some banks used tricks to draw US dollar-denominated deposits and the SBV had to issue a warning that a violating credit institution might face the heaviest punishment of being banned from expanding its network for a period of time.

Therefore, they suggested that the SBV allow a rise in the interest rate of the US dollar deposits above the zero per cent cap.

Hieu said the rate should be adjusted to 0.25 per cent per year.

Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), said an important task of the Government should be turning people's savings into investment capital in Viet Nam rather than investment outflows because the economy is facing a severe shortage of capital.

Huong from LienVietPostBank said the hike in interest rate would encourage people to deposit dollar savings in local banks, instead of foreign banks.

Regarding the Government's effort to curb dollarisation, Truong Van Phuoc, deputy chairman of the National Financial Supervisory Commission, said the policy would not harm the effort.

Anti-dollarisation could not be done in a short time, but it needed a roadmap and flexible policies in accordance with the real condition of the economy, Phuoc said.

Expert Can Van Luc said this was a temporary policy.

"We are on track for prevention of dollarisation. So, by the end of the year, the SBV, the ministries and the relevant agencies will have to review all policies related to foreign currency management, including the new circular."

Luc said if the market showed new movements, the Government would have to make other suitable adjustments. A policy could not be fixed for a long time if the economy did not remain stable. — VNS