Instead of borrowing foreign currency from banks, firms have to buy it from banks from October 1 this year (Photo: VNA) Hanoi (VNS/VNA) - Experts suggested firms use more derivative instruments,such as futures and forward contracts, to minimise exchange rate risks whenthey can no longer borrow the US dollar from commercial banks, starting earlythis month.
According the central bank’s new regulation, banks have been banned fromlending in foreign currency to pay for imports since October 1 this year in abid to limit dollarisation in the local economy. From that date, instead ofborrowing foreign currency from banks, firms have to buy it from banks.
The regulation applies to both domestic banks and branches of foreign banks in Vietnam’slending to anyone who is a Vietnamese resident.
Previously, importers were allowed to take out loans in foreign currencies topay for imports if they could prove they can generate enough foreign currencyfrom their production and trading revenues to repay these loans.
Can Van Luc, Chief Economist of the Joint Stock Commercial Bank for Investmentand Development of Vietnam (BIDV), said currently, many banks have providedderivative instruments so firms which want to buy foreign currencies in thefuture can use forward contracts. This tool helps reduce risks for firmsbecause future exchange rates have been determined from the beginning.
According to Luc, the policy to stop foreign currency loans is in theanti-dollarisation roadmap and was announced early in the year so creditinstitutions have had time to prepare for the application of the new policy.
In general, he said, the relatively stable macro economy, low inflation andstable exchange rate have contributed to improving the confidence in the valueof the Vietnamese dong, which is expected to continually help reduce thehoarding of the US dollar. The new policy thus will not cause difficulties forboth banks and firms, but the central bank and commercial banks should stillcreate a foreign currency trading market with better liquidity to further helpfirms and individuals in meeting their foreign currency demands.
The ban on foreign currency lending also helps raise the competitiveness ofdomestic goods and firms, experts said.
Banking expert Nguyen Tri Hieu said the new regulation would level the playingfield between enterprises producing for domestic consumption and thoseimporting for export production. Earlier, only the latter was privy to dollarloans that generally have lower interest rates than dong loans. Therefore,the ban would encourage production with domestic materials, he said.
Besides, this will also help restrict the import of luxury goods, one of themain factors causing trade deficit and macro-instability, especially towardsthe end of the year when demand for import of consumer goods puts pressure onliquidity in the forex market.
The SBV aims to reduce the proportion of foreign currency in total outstandingdebt to below 7.5 percent in 2020, below 5 percent in 2030, and to stop lendingin foreign currency altogether by 2030. The ratio currently stands at 8.73 percent,which the central bank estimates at around 176.47 trillion VND (7.59 billion USD)./.
VNA
