Central bank loosens dollar lending as the economy shows signs of slowing

By An Hong   May 28, 2016 | 11:35 am GMT+7
Central bank loosens dollar lending as the economy shows signs of slowing
An employee of a bank counts US dollar notes at a branch in Hanoi, Vietnam May 16, 2016. Photo by REUTERS/Kham

Vietnam’s central bank has allowed lenders to resume offering dollar loans for short-term purposes to certain exporters in an attempt to boost the economy.

The State Bank of Vietnam (SBV) has asked banks to ensure that short-term funding is extended to exporters until the end of this year, it said in a circular released on Friday. The rules will be effective from June 1.

In order to secure short-term dollar loans, exporters must prove that they are able to create dollar revenues so that they will be able to pay off their debts.

In December last year, the central bank scrapped the interest rate ceiling on dollar deposits offered by banks to both companies and individuals which previously stood at 0.25 percent. For the first time, dollar deposits at banks in Vietnam are generating no interests at all.

And the central bank stepped up its attempt to avoid dollar hoarding on March 31 as it asked all commercial banks to stop offering dollar loans to both companies and individuals.

The dong slightly fell to 21,257/22,572 a dollar today from 21,173/22,483 on May 4.

Currently the central bank sets the official mid-point rate of the Vietnamese dong against the U.S. dollar on a daily basis. And dong/dollar transactions are now allowed to move 3 percent either side of the fixed mid-point.

This latest move of the central bank is aimed at giving the economy a boost as the country’s real GDP growth in the first quarter of this year was 5.6 percent, lower than the 6.7 percent in the same period last year.