Dollar lending slumps on low demand, tight rules

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Low domestic demand and the central bank's tightening of rules on lending in foreign currencies have resulted in sluggish dollar credit this year, industry insiders say.

They also say that there has been no sign of improvement in the situation through the last months of the year.

Phan Huy Khang, general director of Sacombank, said outstanding dollar loans at his bank fell 30 percent compared to the start of the year.

He attributed the decrease to the shortened list of borrowers eligible for dollar loans that the State Bank of Vietnam announced at the start of the year.

The bank now allows such loans only to firms that earn in dollars, exporters, importers of oil products, and those planning to expand overseas.

Pham Hong Hai, HSBC Vietnam's managing director, said growth of dollar loans had slowed since dong lending became more attractive as interest rates fell to around 6-8.5 percent.

The dong's stability, along with relatively competitive rates against dollar loans which are given out at 3-7 percent, have pulled businesses from dollars carrying exchange risks, he said.

Nguyen Hoang Minh, deputy director of the central bank's branch in Ho Chi Minh City, said the city's dollar lending growth for the first 10 months went down by over 20 percent from the same period last year.

Do Duy Thai, general director of HCMC-based construction steel producer ThepViet, said the ongoing economic slump is a factor in slowing down dollar loans.

His firm's demand for dollar loans decreased by 30 percent from last year and he does not expect steel consumption to perk up in 2014. 

Businesses' operations at this time of the year typically need strong increases in material and feedstock imports to prepare inventories for the first months of the next year, but this has not been seen this year, he added.

Cao Tien Vi, general director of Saigon Paper, also felt an improvement in local demand was unlikely in the coming weeks.

A representative of a wood processor based in the southern province of Binh Duong said decreases in dollar lending rates will remain unattractive to businesses until the economy improves and consumption picks up.

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