Forex shortage crimps banks

Since the start of this week, foreign banks started rushing to buy foreign currencies. Foreign banks have ordered to buy hundreds of millions of US dollars a day from commercial joint stock banks at 16,300 dong a US dollar. However, domestic banks have failed to meet foreign banks' demand because Vietnamese banks are also in need of foreign currencies.

Since the end of March, the selling price of the US dollar at many banks has been listed at high level, up to 16,145 dong a US dollar on May 6. The Saigon Commercial and Industrial Bank even lists the selling price of the US dollar as high as the buying price via account transfer, a sign of demand on foreign currencies excessive supply.

Commercial joint stock banks have bought more US dollars from the free market. After balancing foreign currencies, commercial joint stock banks will sell abundant amount of US dollars to foreign banks. Current accounts of foreign investors at branches of foreign banks are increasingly full of US dollars. US dollars can be injected into current accounts any time without being controlled.

In addition to current accounts, foreign investors use two other kinds of accounts, stake acquisition account in dong and stake acquisition account in US dollars. Currently, the amount of money in these three kinds of accounts can be absolutely controlled by the central bank.

It is not by chance that foreign investors have increased their foreign currency reserve on accounts. The recession of the US's economy has been less serious. The greenback is recovering against other hard currencies. Some projected that the US Federal Reserve Department (US Federal Reserve) will cut its key rate to 2%, which will not be further lowered. If inflation pressure is on the rise, US Federal Reserve may raise its key rate, hence, the US dollar price will revert at any time. Meanwhile, the State Bank of Vietnam still continues selling over US$2 billion over the last six weeks. The central bank started selling US dollars since March 20 when the US dollar price in Vietnam increased from 15,600 dong to 16,300 dong. By April 1, some US$1.2 billion was sold.

During April, total sales of foreign currency met only part of registered buying amount of banks.

According to a banker, the central bank had sufficient foreign currency to sell to banks. However, what the matter was that the more US dollars were sold, the more dongs were attracted. At that time, the market was short of dong. The central bank had to pump dong into the market via the open market operations. This explained why the amount of dong that the central bank injected into the market rocketed before April 30

Now, the central bank has not yet known how much foreign currency it should buy or sell. In order to solve this issue, it is necessary to know the amount of foreign currency on accounts at foreign banks in Vietnam.

In fact, not only foreign banks but also domestic banks have high demand for foreign currency. On one hand, foreign currency deposit inflowing into banks is slow and growth of foreign currency deposits is reducing. On the other hand, because trade deficit in the first four months was up to US$11 billion and payment for imports highly increased, many banks had no way but to use clients' foreign currency on accounts. In addition to US$2 billion that the central bank sold, the remaining US$9 billion was compensated by different sources including indirect investment. However, over the last two months, indirect investment was modest.

Early this year, that the central bank announced that it would let the local currency appreciate in order to rein inflation together with big difference between dong and US dollar interest rates created artificially abundant supply of foreign currency while the economy was reporting trade deficit.

At that time, banks removed US dollars from their asset balance sheets, businesses and residents did the same. No one wanted to hold US dollars when dong appreciated every week and US dollar deposit interest rates were not 50% as much as dong deposit interest rates.

So far, no one has been able to calculate how much US dollars was removed from deposit accounts of organisations and individuals and how much US dollars flowed into accounts of foreign investors in foreign banks.

Once the amount of foreign currency in asset balance sheets of the banking system significantly reduce, this will impact liquidity of other foreign currency at banks.

As for foreign currency credit, demand for US dollar loans is also being pushed up, forcing banks to continuously increase interest rates of foreign currency deposits. While many banks are weak in both dong and foreign currency liquidity, the deposit ceiling interest rate is barring banks from raising deposit interest rates. (TBKTSG)