Vietnam Money-Dong rates up as stimulus package extended

HANOI, Nov 9 - Rates on Vietnamese dong funds have risen on the interbank market as operators expect loan demand to rise after the government extended its economic stimulus package to the end of next year, bankers said.

Bankers quoted one-year dong loans at 9.51 percent on Monday, versus 9.34 percent a week ago. Rates on other short-term loans also increased in the past week, according to Reuters data. <VINBOS>

Loans with the government's rate subsidy totalled 418.58 trillion dong on Nov. 5, a rise of 1.3 percent from a week ago, compared with a rise of 0.26 percent the previous week, central data show.

Bankers said corporate demand for funds near the year-end while the economy was recovering also supported the rate rise.

Outstanding loans have surged from 93 trillion dong at the end of February, when the government announced its subsidy, covering 4 percentage point of the cost of loans to help businesses overcome the fallout from the world economic recession.

The government decided late last month to extend the rate subsidy for businesses through 2010 to sustain the country's economic recovery but it halved the size of the subsidy, covering only 2 percentage points of bank lending rates. [ID:nHAN497207]

Banks have been rushing to raise dong funds by issuing debt [ID:nHAN483321] and raising deposit rates.

Bank deposit rates in October rose 0.1-0.3 percentage point from September to 8.0-10.0 percent, the State Bank of Vietnam, the central bank, said in its October report.

Deposits in Vietnam in the first 10 months of this year rose 25.72 percent from the end of this year, slower than the rate of credit growth of 33.3 percent in the same period, the central bank said. [ID:nHAN424213]

Higher interest rates have not helped the dong, which has lost 2.3 percent against the dollar this year.

It has fallen near to a record low on the unofficial currency market, due in part to demand for dollars to pay for gold imports. [ID:nHAN437002]

It was quoted at 18,920 per dollar on Monday. On Saturday it traded briefly at 19,000, not far from the record low of 19,400 hit in June 2008.

On the official interbank market, the dong <VND=> eased to 17,867/17,869 per dollar on Monday from 17,856/17,861 a week ago.

A fall in remittances from overseas has also contributed to the shortage of dollars on domestic markets.

Overseas remittance to Ho Chi Minh City, Vietnam's business hub, fell to nearly $2.6 billion in the 10 months to end-October, 40 percent down from a year ago, Monday's Securities Investment magazine said, citing central bank data.

On Nov. 4 the World Bank forecast Vietnam's foreign currency reserves would reach $22.96 billion at the end of 2009, enough to cover 3-½ months of imports, down from 4 months last year.