Vietnam plans to tighten foreign exchange rules

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dong-dollarVietnam reportedly plans to set up a new regulation under which foreign residents can no longer deposit foreign currencies at banks in Vietnam.

The State Bank of Vietnam, which is drafting the decree that guides the implementation of the Foreign Exchange Ordinance and the Amended Ordinance, believes that it is now necessary to keep a more tightened control over the foreign currency depositing, VietNamNet Bridge reported

The draft decree says that only the residents who are Vietnamese citizens have the right to deposit foreign currencies at the credit institutions licensed by the State Bank of Vietnam. In fact, the regulation is mentioned in the Foreign Exchange Ordinance already. However, the Decree No. 160 and the State Bank’s regulations allow individual residents to make deposits at banks. “Individual residents” is understood as both Vietnamese and foreign ones.

The contradictory regulations in the documents have led to the inconsistency in the foreign exchange policy, thus putting difficulties for individuals and institutions. Therefore, the state bank has decided to amend the Decree No. 160.

However, analysts believe that the more important reason behind the decision is that the state bank tries to keep a stricter control over the investment activities by foreign individuals.

Since the foreign currency deposit interest rates in Vietnam are much higher than that in other countries, a lot of foreigners tried to bring foreign currencies to Vietnam to deposit at banks to enjoy the high deposit interest rates. After that they transfer all the principals and interests abroad.

The central bank believes that the investment activities have put pressure on the Vietnamese foreign currency market. The activities are believed to harm the foreign currency policies, especially when the foreign currency supply becomes short in Vietnam.

The current ceiling dollar deposit interest rate is 1.25 per cent. However, commercial banks, in order to scramble for depositors, tend to “break the ceiling,” offering the interest rates higher than the allowed rate.

Sources said that commercial banks can “dodge the laws” to offer the interest rates as high as 3.0 per cent, or sometimes 3.8 per cent to dollar depositors.

Tien Phong has reported that the clients who deposit dollars at the bank branches on Lo Duc and Hoang Cau streets can enjoy the interest rate of 3 per cent if they deposit $15,000 or more.

There are many ways for banks to “legalise” the high interest rates. Clients declare on paper that they deposit euros (the state bank does not put a ceiling on euro deposits) at the interest rates determined by commercial banks, and then sign the contracts on buying and selling euros and dollars.

Meanwhile, the outstanding loans in foreign currencies have been decreasing. The central bank’s latest report showed that by October 15, the total outstanding loans had increased by 6.21 per cent over the end of 2012, of which the dong loans increased by 10.66 per cent, while foreign currency loans decreased by 14.05 per cent.

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Reading Time: 2 minutes

Vietnam reportedly plans to set up a new regulation under which foreign residents can no longer deposit foreign currencies at banks in Vietnam.

Reading Time: 2 minutes

dong-dollarVietnam reportedly plans to set up a new regulation under which foreign residents can no longer deposit foreign currencies at banks in Vietnam.

The State Bank of Vietnam, which is drafting the decree that guides the implementation of the Foreign Exchange Ordinance and the Amended Ordinance, believes that it is now necessary to keep a more tightened control over the foreign currency depositing, VietNamNet Bridge reported

The draft decree says that only the residents who are Vietnamese citizens have the right to deposit foreign currencies at the credit institutions licensed by the State Bank of Vietnam. In fact, the regulation is mentioned in the Foreign Exchange Ordinance already. However, the Decree No. 160 and the State Bank’s regulations allow individual residents to make deposits at banks. “Individual residents” is understood as both Vietnamese and foreign ones.

The contradictory regulations in the documents have led to the inconsistency in the foreign exchange policy, thus putting difficulties for individuals and institutions. Therefore, the state bank has decided to amend the Decree No. 160.

However, analysts believe that the more important reason behind the decision is that the state bank tries to keep a stricter control over the investment activities by foreign individuals.

Since the foreign currency deposit interest rates in Vietnam are much higher than that in other countries, a lot of foreigners tried to bring foreign currencies to Vietnam to deposit at banks to enjoy the high deposit interest rates. After that they transfer all the principals and interests abroad.

The central bank believes that the investment activities have put pressure on the Vietnamese foreign currency market. The activities are believed to harm the foreign currency policies, especially when the foreign currency supply becomes short in Vietnam.

The current ceiling dollar deposit interest rate is 1.25 per cent. However, commercial banks, in order to scramble for depositors, tend to “break the ceiling,” offering the interest rates higher than the allowed rate.

Sources said that commercial banks can “dodge the laws” to offer the interest rates as high as 3.0 per cent, or sometimes 3.8 per cent to dollar depositors.

Tien Phong has reported that the clients who deposit dollars at the bank branches on Lo Duc and Hoang Cau streets can enjoy the interest rate of 3 per cent if they deposit $15,000 or more.

There are many ways for banks to “legalise” the high interest rates. Clients declare on paper that they deposit euros (the state bank does not put a ceiling on euro deposits) at the interest rates determined by commercial banks, and then sign the contracts on buying and selling euros and dollars.

Meanwhile, the outstanding loans in foreign currencies have been decreasing. The central bank’s latest report showed that by October 15, the total outstanding loans had increased by 6.21 per cent over the end of 2012, of which the dong loans increased by 10.66 per cent, while foreign currency loans decreased by 14.05 per cent.

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