forex Market eyes safety zone

VietNamNet Bridge - The forex market is heading into the safety zone as major players vow to keep the market in check.

In a mid-year banking conference organised by the State Bank in May, three state-owned banks and joint stock bank Vietcombank reached a consensus to deeply cut their foreign currency mobilisation and lending rates. From June 1 these banks, with a total market share of up to 55-60 per cent, set US dollar rates not higher than 1.5 per cent, per year and lending rates under 3 per cent, per year.

State Bank governor Nguyen Van Giau said he expected the Vietnam Banking Association (VNBA) to encourage other members to follow. “Those four banks alone could drive the market with their dominance,” said Duong Thu Huong, VNBA’s general secretary. But, she said that during the association’s next meeting scheduled in late June, other members were expected to move in tandem.

Vo Tri Thanh, director of Central Institute of Economic Management’s Economic Integration Department, said the move would help stabilise the forex market.
“In theory, low dollar deposit rates would discourage people from holding greenbacks for hoarding purposes and low dollar lending rates would make enterprises borrow more,” said Thanh.

Nguyen Manh, Bank for Investment and Development of Vietnam’s treasury head, said the bank had initially proposed the measure in April in a meeting between the State Bank and commercial banks representatives. “Though it is a bit late, this could help the banking system solve its forex problems,” said Manh.

BIDV has accumulated dollar deposits up to over $1 billion as the demand for borrowing greenback funds dived since the beginning of 2009, with much of the amount deposited in overseas banks. “Even lending locally at 3 per cent, per year is still much better than depositing with rates less than 2 per cent, per year overseas,” said Manh. VNBA’s Huong added that greenback shortages due to people’s speculation would ease.

“We expect that dollar hoarders will gradually sell their dollars to banks as depositing in Vietnamese dong now is a much better deal,” said Huong. Currently, banks are offering interest rates of around 8 per cent, per year for Vietnam dong deposits with terms less than 12 months. However, a source from Asia Commercial Bank (ACB) - the largest joint stock bank in the country, doubted the move would impact on the dollar speculation issue.

“For people currently hoarding dollars in deposit accounts, the low interest rate is not really an issue as they expect the local currency to continue its depreciation path against the greenback,” said the ACB official.

Since the beginning of 2009, the Vietnamese dong has depreciated around 3 per cent against the US dollar and banking experts forecasted the depreciation ratio would be 5-6 per cent for the whole year.

VietNamNet/VIR