The surge in dollar lending will not badly affect the foreign exchange market, says Nguyen Thi Hong, Director of the central bank’s Monetary Policy Department. Photo credit: Reuters
Dollar credit in Vietnam grew by 9.4 percent in the first five months of the year as the central bank loosened restrictions on greenback loans to boost overall credit growth.
“As of late May, dollar loans were up 9.35 percent from late last year while total credit grew only 1.51 percent,” said Nguyen Thi Hong, director of the central bank’s Monetary Policy Department.
“This means that if the central bank hadn’t permitted commercial lenders to issue more dollar loans, total lending wouldn’t have experienced such an increase,” Hong said in a recent statement.
Vietnam’s banking sector is struggling to meet its credit growth target of 12 percent this year as many companies turn down bank loans to bolster production given high inventories.
Many others remain ineligible for loans due to their weak financial capacity.
Hong said the surge in dollar lending won't damage the foreign exchange market as significantly as economists had feared.
Dollar credit only grew by 1.34 percent more than during the first five months of 2013, she said.
Hong also said most of the dollar loans were granted to companies that earn in dollars to help them repay loans and those operating in prioritized sector (e.g. agriculture).
A recent report by the National Financial Supervisory Council showed that the ratio of dollar loans-to-deposits at Vietnam’s banks rocketed to 99.5 percent in early May from 84.3 percent at the beginning of this year.
These figures have worried some economists and bankers, who say the country’s banking system may not be able to meet its payment obligations when they come due.
But Hong said that the ratio of dollar loans-to-deposits was only between 50-60 percent in case deposits from foreign banks were included in the total dollar deposits and hence, the system's liquidity is not at risk.