Interest rates cut to lure foreign currency borrowers

May 27, 2009

VietNamNet Bridge – Interest rates on foreign currency loans have been lowered by commercial banks to very low levels in an effort to attract more borrowers.

The corporate banking director of a HCM City-based bank said that importers always have a demand for foreign currency capital, and the demand for capital has increased in comparison with the end of last year. However, many businesses still prefer borrowing in VND to enjoy the 4 percent interest rate subsidy programme, and to avoid VND/US$ exchange rate fluctuations.


The high demand for VND capital in the last three months has led to banks having an excess of capital in foreign currencies. Preliminary reports by commercial banks showed that the outstanding loans which have been provided under the VND interest rate subsidy programme had reached 301,381.77 dong by May 21, an increase of 3.2 percent over May 14.


In order to settle their capital surplus problems, banks have slashed US$ deposit interest rates to 2.8 percent on average for 12-month term deposits.


The lower deposit interest rates have allowed banks to slash lending interest rates, thus helping them lure foreign currency borrowers back. The US$ lending interest rates are now hovering around 4-5 percent per annum.


In order to help businesses avoid exchange rate risks, Eximbank has launched a product of loaning in US$ to fund import deals with fixed exchange rates. With the loan, businesses don’t have to worry about exchange rate fluctuations, because Eximbank fixes the sale prices of foreign currencies at the disbursement time.


Currently, the bank is lending in US$ at 5 percent per annum for less than 12-month term loans.


Vo Thuy Ngoc from ACB’s Corporate Banking said that the number of import companies that borrow in dollars to make payments for imports is tending to increase instead of decreasing as seen in the first three months of the year.


Ngoc said that businesses should not hesitate to borrow in dollars now, as the exchange rates are now not heavily fluctuating as they did previously. ACB is providing loans in US$ at 5-5.5 percent per annum.


The State Bank of Vietnam, in an effort to stabilise the foreign currency market, said that it will implement comprehensive measures, while calling on banks to slash US$ deposit interest rates which in theory would allow them to slash lending interest rates and encourage businesses to borrow in dollars.



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