Vietnam will force banks to keep more reserves against their foreign currency deposits from next month and impose a ceiling on dollar deposit rates, the central bank said, as it moves to curb dollarisation and ease pressure on the domestic currency.
The reserve ratio for non-term deposits and those with terms up to 12 months will be raised to 6 percent from 4 percent, and the ratio on deposits longer than 12 months will double to 4 percent, the State Bank of Vietnam said in a statement.
The ruling will apply for reserves from May, it said. The US currency dominates banks' foreign exchange deposits. As of April 13, the ceiling for interest rates on dollar deposits would be 3 percent, the central bank said in a separate circular, imposing the cap below the current market rates.
Banks in Vietnam have been offering to pay between 4.5 percent and 6 percent a year for dollar deposits of 12 months or longer, the central bank said in a weekly report. "These measures are within our expectation, as the central bank's next steps in curbing dollarisation and stabilising the dong," a treasury manager at a major Hanoi-based bank said.
"These measures will be good for banks, because we actually have little benefit in the race to raise dollar deposits," she said, adding that lenders have already cut dollar deposit rates in the past weeks ahead of the central bank's move. Higher reserves will raise the cost of banks' fund raising while dollar rates to be capped at lower than now will also prevent residents from dollar hoarding. Vietnam, which has been facing a trade deficit every month since April 2009 and also falling foreign exchange reserves, has stepped up measures this year to curb the widespread circulation of the dollar in its economy.
Vietnam conducted a major devaluation of the dong in February, allowing it to fall 8.5 percent against the dollar. The central bank has also clamped down on dollar trading in the unofficial market since mid-March and said it would limit dollar lending, gradually moving to a ban on loans in the US currency.
Vietnam's foreign exchange reserves last year dropped 12 percent from 2009 to $12.4 billion, enough to cover 1.9 months of imports at the end of 2010, the Asian Development Bank said on Wednesday. Current reserve ratios have been in place since February 2010, when the central bank cut the rate on non-term dollar deposits and those with terms up to 12 months to 4 percent from 7 percent. The ratio on deposits longer than 12 months was cut to 2 percent from 3 percent.