Vietnam & World Forex Market News

Small and medium enterprises are seriously lacking foreign currencies to import materials, while they cannot purchase foreign currencies from banks.

Nguyen Van Dung, Head of the General Affairs Division under the State Bank of Vietnam, HCM City branch, said that commercial banks now have an abundance of foreign currency capital, but lack the foreign currencies to sell.

Depositing dollars at banks, not selling dollars to banks

It explains why businesses prefer depositing foreign currencies at banks to selling dollars to banks, leading to the fact that the mobilized capital in foreign currencies has increased. According to the State Bank of Vietnam, the mobilized capital in HCM City has increased by 4.4% in Q1, with the deposits in foreign currencies on the rise and the VND on the decrease.

According to Nguyen Van Thanh, Director of a business specializing in importing and recycling plastics packs in HCM City, businesses have suffered several tens of thousands of dollars each time when the exchange rate fluctuated.

“The VND/US$ exchange rate tends to increase, which makes it profitable to sell dollars at this moment. But will businesses be able to purchase dollars when they need dollars to import materials?” Thanh questioned.

Dung from the HCM City branch of the State Bank of Vietnam estimated that businesses in the city now have US $9 billion. However, very few businesses want to sell dollars to banks as they fear that easier sold than purchased. “If businesses do not sell the dollars and they only make deposits at banks, how can banks have enough dollars to sell to businesses?” Dung said.

Borrowing in dollars, not in VND

Currently, the VND lending interest rate is at 10.5% per annum at maximum, while the US$ rate is just 6.5%, but businesses still prefer VND loans.

Tran Thanh Cong, Director of Trieu Dai Company Ltd., specializing in importing and assembling consumer electronics products, said that it seems that it would be more profitable to borrow in dollar with the exchange rate at VND 18,000/US $1.00.

However, if the exchange rate unluckily increases as it once increased in early 2009, to VND 18,500 or VND 19,000/US $1.00, businesses would suffer the loss of between VND 500-1,000/US $1.00 from the exchange rate fluctuation. If counting on the interest rate, the total capital cost would be as high as 11.5%. Meanwhile, the total cost for VND loans is only 10.5% per annum.

In principle, businesses will make profit when the exchange rate decreases. However, no one thinks that the dollar price will decrease in the time to come, when experts all said that Vietnam needs to devaluate the local currency to encourage export.

However, Pham Thanh Tuyen from the New Toyo Company said that VND loans prove to be not the best solution in all cases. Businesses have to make payments in dollars for many import contracts, while they cannot purchase several hundreds of thousands of dollars within a short time.

According to Nguyen Ngoc Thang, Deputy Director of the HCM City branch of the State Bank of Vietnam, the demand for borrowing capital for investment in general, and in dollar in particular decreased sharply in the first quarter of 2009. There is a growing tendency of converting the loans in foreign currencies into VND to minimize the risks caused by the VND/US$ exchange fluctuations.

Thang said that in the current economic difficulties, a lot of enterprises keep production at the moderate level to retain workers, while they do not focus on obtaining profit.