BANKS TAKE OUT INT€™L LOANS TO MEET LONG-TERM NEEDS

Vietinbank has recently also signed a syndicated loan worth $200 million with 18 international banks in Taipei, led by BNP Paribas and Taipei Fubon Commercial Bank.

Vietinbank said the foreign currency loan would provide the bank with funds for the production and business activities of enterprises.

Some other domestic banks are also negotiating with international institutions for loans.

Người Lao Động (Labourers) newspaper quoted Director of the central bank’s Monetary Policy Department Bùi Quốc DÅ©ng as saying that previously, US dollar holders often deposited short-term tenors and commercial banks capitalised on the capital source to provide long-term loans.

However, after the central bank cut the interest rate of dollar deposits to zero per cent, dollar holders have turned to demand deposits. Commercial banks, therefore, have to borrow long-term foreign currency loans from international institutions to offset the funds lent to domestic businesses, DÅ©ng said.

Besides this, industry insiders said, commercial banks that used too much short-term capital to provide medium- and long-term loans also had to borrow international loans and then transfer the dollar loans into đồng to balance their long-term funds.

With the transfer, banks also expected to make a profit as they forecast the forex rate would not rise beyond 5 per cent while they would lend the capital in đồng with a long-term interest rate of more than 10 per cent per year. Currently, the interest rate on dollar loans from foreign institutions is roughly 2 per cent per year, equal to the 6 per cent interest in đồng.

However, experts said it would be risky for banks as no one could accurately forecast the movement of the dollar in the global market, according to the Người Lao Động newspaper.

Trần Ngọc Thơ from the HCM City Economics University warned that it would be very hard for banks to forecast the movement of the dollar against the đồng under the current foreign exchange policy as the central bank no longer announces a cap for the forex rate yearly but allows the forex rate to change daily.

Thơ suggested that the central bank should not allow local commercial banks to lend out their international loans after transferring them into đồng.

Only the government can legitimately borrow international loans through the issue of bonds, Thơ said.

Source: VNS