HSBC CEO Pham Hong Hai talked with Dan Tri about the effect of newly-issued Circular 24 by the State Bank of Vietnam on the Vietnam’s dong’s value and foreign exchange rates.
Pham Hong Hai
On December 8, 2015, the SBV issued Circular 24 on providing foreign currency loans. It states that banks would stop providing loans to companies that do not make offshore payments starting from April 2016. The policy was particularly to address firms that bought foreign currencies to convert to VND to earn profits from exchange rate differences.
Short-term loans to cover the export of goods via Vietnam's border gates have also been banned.
What do you think about the Circular 24?
The authorities have been supporting foreign currency loans to improve credit and economic growth rates. However, the main aim has been to continue minimising loans in foreign currency to curb the dollarisation of the economy. The credit growth rate saw great improvement last year and first three months this year. The economy also recovered so it's not surprising that the circular is carried out.
How will the circular affect firms and banks?
Of course firms will have to switch to VND and bear higher lending rates. But the rates have been lowered continually lately so it should not be a problem. Banks should make sure that they have enough cash for transactions. Meanwhile, their sources of foreign currency will increase and they don't need to encourage deposits in foreign currency as loans will decrease.
Why do you think this circular was issued?
As I said, this aims to minimise dollarisation in Vietnam. The state bank wants to shift from making deposits and taking loans to selling and buying foreign currency. In the long-term it will help promote the position of VND and stabilise currency exchange rates.
Do you think after this the deposit rate for USD, which is zero right now, will further drop to negative?
No because banks still need foreign currency deposit accounts for loans. There are firms that still need to make payments overseas or for important national projects. In addition, the interest rates for the USD globally is likely to increase slightly after the US Federal Reserve raised short-term interest rates to 0.25-0.50 percent and it's likely that they will make further increases this year.
Do you think the deadline for Circular 24 should be extended?
It has been extended for several years before so firms could enjoy low lending rates and to boost economy. I think it's time for the state bank to implement this circular as our economy recovered.