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              Banks scourged by falling dollar
Friday, November 30th, 2007 The supply of dollars is now so profuse that it is always higher than the banks’ purchasing capacity. Banks now buy dollars in dribs and drabs, as they do not have enough VND. The volume of dollars flowing into Eximbank these days is 30% higher than the same period last year. In the first 10 months of the year, some US$2bil went in. In the last few days, the bank has purchased US$5-7mil every day. Currently, Vietcombank, the biggest foreign currency trader in Vietnam, always quotes the dollar purchase price equal to the sale price, at VND16,048/USUS$1 (as of November 27), reflecting the bank’s desire to bring as few dollars as possible. An official from Vietincombank said that the supply of dollars is very profuse but the bank is not able to purchase dollars in large quantities, as the bank does not enough VND. The official said that banks are now incurring losses due to the devaluation of the dollar. However, banks still have to buy dollars at prices higher than the levels they want since they must adhere to the floor level set by the State Bank of Vietnam. In principle, when there is an excess of foreign currency supply, the central bank would buy, in order to prevent devaluation which harms exports. However, the central bank has yet to interfere in the market. There are no signs that the central bank will buy up dollars from commercial banks. People are now exchanging the dollar for VND at a tremendous rate to prepare for Tet shopping. Meanwhile, making dollar deposits in foreign banks is not profitable for Vietnamese banks, as the world’s interest rates are reducing due to the FED’s rate cuts. The supply and demand imbalance of the dollar has become more serious as commercial banks cannot find borrowers. Import-export companies, the biggest clients, rarely borrow dollars at the end of the year; they need VND to pay local companies. The Vietincombank official said that the demand for VND loans is increasing, but the bank is trying to limit outstanding VND loans. Meanwhile, the bank is ready to satisfy any and all dollar loan demands. Ho Huu Hanh, Director of the HCM City Branch of the State Bank of Vietnam, acknowledged that dollars are now in excess. Nguyen Van Hung, Deputy Director of the Hanoi Branch of the State Bank, also said that banks are facing dollar abundance. However, he said that Hanoi’s banks would not bear insurmountable pressure as Hanoi is the banking centre. Mr Hung said that there would be no significant changes to the VND/USUS$ exchange rate towards year end. Banks top priority now is to help curb inflation, he said. Source: VnExpress Have Your Say: Banks scourged by falling dollar Please read our posting guidelines before posting. Alternatively you can discuss this report here. Related News
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