VietNamNet Bridge - The increased demand for loans as well as the dong appreciation has increased the deposit interest rate. 


In September and December 2015, the State Bank of Vietnam (SBV) twice announced the adjustment of the dollar ceiling deposit interest rate, after which the dollar deposit interest rate dropped to zero percent.

The move aimed to encourage people to convert dollar into dong, thus cooling the tense forex market.

However, observers said despite the zero interest rate, people were still keeping dollars instead of dong, because the dollar has appreciated in the world market following the US FED’s decision on raising the prime interest rate.

Therefore, individuals who now keep dollars do not intend to sell dollar for dong. 

They will gradually withdraw dollar deposits from banks when the deposits become mature. 

Though they cannot profit from dollars, they still hope they can make money when the dollar price increases.

A banker who asked to be anonymous said the dollar liquidity was now under pressure. 

In September and December 2015, the State Bank of Vietnam (SBV) twice announced the adjustment of the dollar ceiling deposit interest rate, after which the dollar deposit interest rate dropped to zero percent.

As businesses need dollars to make payments for imports, which increase sharply in the last months of year, the demand for deposits in dollars at banks has decreased.

In previous years, dollars from other markets, where the interest rate was low, flowed into Vietnam, where the interest rate was higher. 

The banker predicted that the dollar capital is flowing out of Vietnam because the dollar interest rate in the world market has increased again following the US FED’s decision.

All these factors have affected dollar liquidity and commercial banks’ forex position. 

In order to settle the problem, banks have to use dong to buy dollars to improve their forex position and keep the liquidity stable. 

This means that they need more dong and therefore have to raise the dong deposit interest rates to attract more dong deposits.

Dong or dollar?

With the dong deposit interest rates at 5-6 percent per annum currently and the inflation rate expected to be higher in 2016, investors believe that it would be more profitable to keep dollars because the dollar price increase is foreseeable.

International press reported that the portfolio investment flow into emerging markets has changed its direction. 

Foreign investors have withdrawn their capital from ETF and sold shares in large quantity recently. 

Therefore, analysts said, there might be a wave of investors withdrawing dong from banks and converting  into dollars to pour into short term investment deals. If so, banks’ liquidity would be put under pressure.


TBKTSG