By the end of 2015, the amount of deposited money by Vietnamese nationals in foreign banks reached USD7.3bn, according to the report by the Vietnam Institute for Economic and Policy Research (VEPR).
Offshore deposits mounting
Nguyen Duc Thanh, director of VEPR, said after China made moves to weaken the yuan since last August, Vietnam suffered a trade deficit of USD6.6bn in the third quarter. In addition, deposits in foreign banks increased up to USD7.3bn. During this time, the foreign exchange activities at local banks, foreign direct and indirect investment operations were normal.
"This is like a liquidity trap. Both local deposit and lending rates were low, meanwhile, people were expecting that the exchange rate between Vietnamese dong and US dollar would increase after China weakened the yuan," Thanh said.
Local commercial banks failed to boost foreign currency loans and making indefinite deposit accounts at foreign banks became more profitable.
Recently, in an effort to minimise the dollarisation of the economy, the State Bank of Vietnam lowered the deposit interest rate for USD to zero. The newly-issued Circular 24 by the SBV also asked banks to stop providing loans to companies that do not make offshore payments. This will likely driven the amount of offshore deposited money up.
Thanh said the policy to minimise the dollarisation was not wrong but while doing so, the government should carry out plans to raise public's trust in the Vietnamese dong simultaneously. While people are flocking to deposit money overseas, local banks are providing foreign currencies loans from overseas to meet domestic demand because the US dollar still plays an important role in the country’s export sector.
"The state bank must have measures to prevent a disturbance by establishing a market where people can trade US dollar easily," Thanh said.
Moreover, inflation will be a huge challenge to face in near future. The credit growth target of 16 to 18 percent will likely increase inflation rate and if inflation rate goes up, people will quickly lose their trust in Vietnamese dong.
