US dollar deposits at HCM City-based banks rose only 3.3 percent in the first seven months of the year, according to the State Bank of Viet Nam's figures, while lending in dollars surged by about 19.2 percent during the same period, stirring concerns over dollar liquidity in the banking system.

Total outstanding loans also reached over 790 trillion VND (38.33 billion USD) during the period, up 7 percent against last December or 2.1 percent against the same period last year.

In a recent petition to the State Bank, the Viet Nam Banking Association (VNBA) suggested that capping interest rates that commercial banks can pay on US dollar deposits at 2 percent – compared to 14-18 percent for dong deposits – could lead to a shortage of dollars in the system and add to exchange rate instability.

In practice, some commercial banks have reportedly been increasing the interest rates they offer on US dollar deposits beyond the current ceiling of 2 percent per year, with some customers reporting that they have been offered short-term rates of 3-3.5 percent and even over 4 percent for larger sums.

The banks are willing to risk the violation due to the high demand of borrowers for loans in dollars – currently at about a third of the cost of borrowing in dong. Dollar loans currently bear interest rates of, at most, 10 percent, compared to dong rates of 20-22 percent per year.

To slow the demand for dollar loans, the VNBA has proposed that the State Bank narrow the eligibility requirements for borrowers.

The State Bank, meanwhile, has said it would keep a close watch over any sharp increases in the number of outstanding loans in US dollars and would take necessary measures to avoid market chaos.

HCM City 's 16 commercial banks have held credit growth at less than 20 percent so far this year in line with Government regulations and kept total outstanding loans to borrowers in non-production sectors (including real estate development, securities and consumer loans) to no more than 22 percent of total outstanding loans, the State Bank said.

Outstanding loans in the entire banking system by early June had increased by 22.2 percent from the beginning of the year, while outstanding loans in dong had increased by only 2.72 percent, according to a State Bank report./.