Vietnam cbank to shrink banks’ FX positions

HANOI – Vietnam's central bank said on Wednesday it will require lenders to reduce the amount of foreign currency they hold at the end of each day beginning in early May, in what bankers said was another attempt to prevent dollar hoarding and control the foreign exchange market.

Starting on May 2, banks will have to keep their long foreign exchange position at no more than 20 percent of their equity by the end of each working day, compared with 30 percent now, the State Bank of Vietnam said in a statement.

The 20 percent ratio will also be applied to the short position, the statement said.

Branches of foreign banks with equity below US$25 million will be required to keep their foreign exchange positions at no more than $5 million on a daily basis, the central bank said.

The Vietnamese dong has been stable so far this year, with the mid-point rate set daily by the central bank at 20,828 dong per dollar, unchanged since late December, following a lower-than-expected trade deficit in 2011 of $9.5 billion.

The central bank's move is another step to gain control of the foreign exchange market and reduce risks, said a currency trader at a Hanoi-based bank.


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"The lenders will have less room to hold and speculate the dollars," he said.

The move will prompt lenders to sell dollars to the central bank, said another banker in Hanoi.

The dong will depreciate by no more than 2-3 percent against the dollar this year, central bank governor Nguyen Van Binh has said, after losing 5.2 percent in 2011.

The dong's depreciation has slowed this year as businesses reduce imports due to unfavourable economic conditions and after the central bank stepped up measures to control the gold market, which ultimately reduces the demand for dollars, analysts said.

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