Head of the central bank's Money Policy Department Nguyen Thi Hong said this to the local press on July 6.
TheMinistry of Planning and Investment's statistics showed that credit inforeign currencies grew by 10.51 percent, while the growth of dong loanswas only 0.68 percent as of June 20.
Hong listed three factorsthat are supposed to ensure the liquidity of foreign currencies, in aresponse to an earlier report of the National Financial SupervisoryCouncil which said that credit in foreign currencies was bearing certainpressure.
First, the dollar loans in May increased by 9.35percent against the end of 2013, but increased by 1.34 percent only,year over year.
Second, taking into account all deposits andsavings from domestic accounts and other capital sources, the ratio ofdollar spending is only between 50 percent and 60 percent.
Third,most of the dollar borrowers are companies which have shown proof ofhaving dollar resources to repay the loan. Otherwise, dollar loans areonly granted to companies in priority sectors such as exports,agriculture, hi-tech applied agribusiness and auxiliary industry.
"Whilethe overall credit growth is low, the central bank flexibly allowscommercial banks to expand credit in foreign currencies," Hong said.
TheState Bank of Vietnam (SBV) reported that the overall credit growth inthe first six months was 2.3 percent. The banking system now has sixmore months to achieve 12 percent credit growth by the end of the year.
Hongsaid that credit in foreign currencies significantly contributed to theoverall credit growth. In May 2014, Hong said if dollar loans had notincreased by 9.35 percent, the entire credit would not have reached 1.51percent.
The State Bank of Vietnam's reports showed that theborrowing costs of dollar loans were 3 to 4 percentage points lower thanthat of dong loans. This has been blamed for the steady increase ofdollar loans.
The annual interest rates charged over privilegedloans hover around 7 to 8 percent. For manufacturing sectors, the ratesare 9 to 10 percent for short-term loans and 10.5 to 12 percent for mid-and long–term loans per year. For dollar loans, the popular lendingrates are between 3 to 7 percent annually.
Although she affirmedthat the recent rise of foreign credit is in line with the State Bank'sdirection, Hong said that the bolstering by dollar loans was ashort-term policy.
The central bank would go ahead with measuresfor de-dollarisation of Vietnam's economy. In the coming weeks, SBVwill closely supervise credit growth, especially dong loans, to madeproper adjustment.
Economists have urged the central bank to cutthe dong interest rate further, in order to ease the capital costburden on businesses. The central bank said it would take time toconsider the issue thoroughly for the sake of the dong position in thelong run.
Last week, Pham Xuan Hoe, deputy head of the centralbank's Monetary Policy Department, said that the total capital supplyincreased by 6 percent as of 25 June. Roughly 87 to 90 percent of thecapital resources in banks went to Government bonds and State Treasurybills, though they should go towards supporting economic recoveryinstead.-VNA