Commercial banks are mulling slashing interest rates for dollar deposits as the State Bank of Vietnam (SBV) is getting tough on the so-called dollarisation in the economy by limiting the dollar borrowing and buying purposes.

A customer transacts with DongA Bank in HCMC in a file photo.

The central bank in its Directive 01 issued on March 1 lists a host of measures to limit the prevalence of the U.S. dollar in banking transactions. These include capping the dollar credit growth at less than 20%, and denying importers of non-essential goods to buy or borrow the greenback.

In its directive, the central bank also says it will gradually switch the dollar borrowing-lending relationship at banks to a buying-selling one. In addition, the central bank will scrutinize the use of the dollar, and limiting loans in Vietnam dong to importers to buy the dollar for payment of non-essential goods.

Deputy central bank governor Nguyen Van Binh has made it clear that dollars would only be supplied to those enterprises that manufacture and trade in essential goods and have dollar incomes from their core business operations. That means importers of goods for sale in the country cannot borrow dollars in the future, prompting the demand to borrow dollars to fall in the coming time.

Nguyen Thi Kim Xuyen, deputy general director of DongA Commercial Bank, said that if the number of clients who can borrow dollars is down in the future, the dollar savings rate would surely be trimmed.

“My bank is considering a saving rate cut for dollar deposits,” Xuyen said.

Echoing Xuyen’s view, the general director of a joint-stock bank in Ho Chi Minh City said the deposit rate for dollars will decline if the central bank narrows down the types of clients who can borrow dollars. However, he also noted that certain banks facing liquidity problems may continue keeping the dollar interest rate high.

The current dollar deposit rate ranges from 5% to 5.5% per year for terms from one to 13 months. However, some banks are raising dollars at a much higher rate, such as Western Bank offering a rate of 6.35% per year for the 13-month term, or SeABank mobilizing the dollar at 6.2% per year.

According to the central bank’s Ho Chi Minh City branch, as of end-2010, outstanding loans of banks in the city had totaled VND709 trillion (USD3.39 billion), up 26.7% year-on-year. However, while credits in dong grew 21.9%, dollar credits surged 41.5%.