In HCM City alone, overall deposits in the January-July period rose 6.7 percent against December to 860 dong trillion, but deposits in dong far outpaced those in the dollar, at 7.18 percent and 3.33 percent, respectively, according to the central bank's HCM City Branch.

The big problem is seen in total outstanding loans.

HCM City-based banks saw their total outstanding loans rise 7 percent from end-December to 760 trillion dong but the growth rate in dollar credits as of end-July was at a whopping 19.18 percent compared to a mere 2.44 percent in credit growth for dong.

Most enterprises wanted to borrow foreign currencies as the interest rate was at a maximum of only 8 percent per year, much lower than dong credits carrying an annual interest rate of 20-22 percent, said an expert.

On the national scale, the picture is even darker.

Mobilised capital in foreign currencies at banks nationwide as of end-June dropped by 5.88 percent from the previous month while the outstanding loan increased by 2.3 percent. This might cause the likelihood of losing forex liquidity.

As a result, many banks are now breaking the mobilised interest rate ceiling of 2 percent to attract foreign currency deposits, with many offering a rate as high as 4 percent to 5 percent a year.

Vietnam Banks Association, in its petition sent to the central bank's governor, said that the low ceiling for foreign currency deposits and the high one for dong could lead to an imbalance of forex supply and demand as well as pile up pressure on the exchange rate in the year's end.

If the liquidity problem occurs with dong, the central bank could intervene by injecting capital via recapitalisation or open market operations. However, for improving the liquidity of foreign currencies, the central bank has little room to exercise, and could only resort to the foreign reserve.

The association proposed the central bank to tighten the dollar borrowing of enterprises. Accordingly, only those enterprises with incomes in the dollar could access bank loans in the foreign currency.

Besides, the central bank needs to raise the current foreign currency reserve requirement at commercial banks which was now 7 percent of the total deposits.

The Saigon Times Daily - August 4, 2011