Customers apply for loans at VPBank in Ha Noi. As of October this year, while dong credit grew by over 11 per cent, foreign currency credit growth was minus 13.6 per cent. — VNA/VNS Photo Tran Viet

HCM CITY (Biz Hub)— Foreign currency lending is likely to end sooner than the Government's original schedule because the central bank's efforts to limit its use in the economy have proven effective, the Viet Nam Investment Review has reported, citing an unnamed source.

The Government planned to gradually phase out foreign currency loans, ending the practice by 2020, the source said.

However, latest data from the State Bank of Viet Nam shows that as of October this year, while dong credit grew by over 11 per cent, foreign currency credit growth was minus 13.6 per cent.

Analysts attribute the negative growth to the Government's anti-dollarisation strategy, which has included several regulations to tighten the use of foreign currency in domestic economy transactions. These policies have been implemented since 2011.

Dr To Kim Ngoc, deputy director of the Banking Academy of Viet Nam, said the portion of foreign currency deposits in the country's total means of payment had dropped from 19.5 per cent in 2011 to more than 11 per cent by the middle of this year.

Meanwhile, foreign currency lending and depositing transactions had changed to buying and selling, Ngoc said.

Dr Le Xuan Nghia, member of the Monetary and Financial Policy Advisory Council, agreed with Ngoc, explaining that the central bank's anti-dollarisation policies include raising compulsory reserves, reducing exchange position at banks, and decreasing the interest rate of foreign currency deposits.

As a result, the foreign currency reserves increased and the exchange rate was kept stable, Nghia said.

Nghia said he believed that foreign currency lending would likely end sooner than the target date of 2020, but did not offer a specific guess.

Phased approach

Many banking industry insiders say they agree with the Government's anti-dolarisation policies, but want it implemented in stages, without impatience.

"Foreign currency lending is being limited but stopping the provision of foreign currency loans should be done gradually. The Military Bank (MB) has still had a certain amount of foreign currency credits," said MB deputy general director Nguyen Thi An Binh.

The industry insiders have also expressed their worries over the central bank's policy to cut the interest rate of foreign currency deposits to zero in the future.

They said the banks would not be able to mobilise foreign currencies because of the zero interest rate, but would still need them to sell to enterprises and individuals.

Nguyen Tien Dung, general director of the Agricultural Products and Materials Joint Stock Company (Agrimaco), said he highly appreciated the central bank's exchange rate policies.

But, he added, if foreign currency lending was banned, import enterprises would find it very difficult to make payments.

Ngoc of the Banking Academy affirmed that the Government's strategy was to implement its policy on foreign currency lending gradually. Cutting the interest rate of foreign currency deposits would also be done in stages, she said.

As evidence, she noted that the foreign currency deposit interest rate was still being kept at 1.25 per cent per year. — VNS