Vietnamese banks prefer borrowing from foreign banks to domestic sources The dollar deposit interest rate in Vietnam remains at zero percent, but commercial banks are still trying to borrow dollars from foreign banks.   “Why does a Vietnamese commercial bank borrow dollars from foreign banks, though the dollar interest rate in the domestic market is zero percent?” Said Le Duc Thuy, former Governor of the State Bank, at a workshop held several days ago. Thuy said this was a ‘really a big problem’. The commercial bank which decided to borrow money from foreign sources is VietinBank, a bank in which the state holds the controlling stake. VietinBank has signed contracts on a loan worth $200 million with 18 foreign banks. Not only VietinBank, the Ministry of Finance also plans to borrow $3 billion this year from foreign sources by issuing government bonds in the international market. VietinBank declined to reveal the interest rates of the loan. In the past, it did this at the interest rate of 8 percent per annum. Meanwhile, the government had to pay interest rates of 5-8 percent per annum for its international bonds. A senior official of the State Bank, when asked about VietinBank, said that the bank doesn’t lack foreign currencies. The dollar deposit interest rate in Vietnam remains at zero percent, but commercial banks are still trying to borrow dollars from foreign banks. Meanwhile, VietinBank’s CEO Le Duc Tho said that the $200 million loan aims to balance the capital demand, and that the bank negotiated with banks thoroughly so as to borrow at reasonable interest rates. “This is a long-term loan, which commercial banks find it hard to find in the domestic market,” Tho explained. “It is understandable why VietinBank decided to borrow money from foreign sources. It is very difficult for both businesses and commercial banks to seek such a big long-term loan in the home market,” a finance expert said. Also according to the expert, the dollar deposit interest rate in the past was high at 6.5-7 percent per annum, but long-term deposits just accounted for a small proportion. Businesses and individuals only made short-term deposits which allowed them to withdraw capital anytime they wanted. In fact, the government once succeeded in mobilizing capital in the home market when borrowing $1 billion from Vietcombank. However, the expert said, the ‘domestic resources are limited’. A question has been raised that if commercial banks and the government can borrow long-term capital if they offer higher interest rates. The expert said that if the dollar deposit interest rate increases, this would be contrary to the other applied policies and make policymakers’ efforts to ease the dollarization in vain. He went on to say that if so the current exchange rate stabilization and long-term targets set by the watchdog agency would be unattainable.  TBKTVN