The central bank is consulting relevant authorities over a draft circular that would bring down the foreign exchange position of local credit institutions and foreign bank branches in the country to 20% from the current 30%.
 |
| A staff of a local bank counts U.S. banknotes in a file photo. The central bank is working on the draft of a rule that would lower forex holdings by banks - Photo: Le Toan |
The current regulation requires banks to hold an amount of foreign currency equivalent to a maximum of 30% of their equity at the end of each trading day. This rule has been in place since 2002 when banks’ equity was small.
However, banks have pushed up their equity in recent years, meaning they can now hold far bigger amounts of foreign currency.
The rule may backfire under the present economic conditions as any undersupply of U.S. dollar funds on the market will lead banks to hold on to their big amounts of dollars as was seen early this year.
Experts have in some occasions suggested revising down the forex holdings by banks. In late April, the Prime Minister asked the central bank to propose a new regulation that would slash the forex position of banks as a measure to tame the forex market that occasionally ran wild in the recent past.
The draft suggests foreign bank branches with equity of USD25 million or less be allowed to hold around USD5 million at the end of each day.
A deputy general director of a joint-stock bank said that if the forex position was narrowed down, it would have partial impact on banks’ profits as it would restrict their forex trading activity.
Meanwhile, the foreign exchange director of a foreign bank said that given the current stable forex market, narrowing the forex position would not have much impact on banks since banks tended not to hold huge dollar funds.
However, in long term, it will affect banks’ profits when the forex market becomes volatile, this banker said.
