Capital outflow in Vietnam surged in the third quarter of 2015, mostly seen in overseas forex
deposit as the Vietnamese central bank moves to tackle dollarization in the economy and the Chinese yuan was strongly depreciated, the Vietnam Institute for Economic and Policy Research (VEPR) said in its latest report.
The outward flow, mostly composed of overseas forex deposits, soared to $7.3 billion while the figure was insignificant before, said VEPR, noting that this abnormality needed close monitoring.
While direct and indirect investment remained little changed, the outflow caused the overall balance of payments to post a deficit of $6.6 billion in the quarter.
The think tank supposed that the abnormality could be seen as a forex “liquidity trap” in the local banking system.
Source: CEIC, VEPR
Depositing forex overseas seemed to be optimal for local commercial banks which could not find borrowers as the Vietnamese dong was expected to devalue further following strong devaluations of the Chinese currency, said the report.
A surge in overseas deposits can be attributable to the State Bank of Vietnam
’s move to cut the rate ceiling on USD
-denominated deposits to 0% in late September 2015 and limit the eligibility for forex loans.
“Commercial banks would face challenges in balancing their forex liquidity and giving out forex loans, thus opting for overseas deposits,” the report added.
VEPR researchers commented that the move to lower the forex deposit rate to zero, accompanied with a lack of an effective USD buying-selling market, has led to imbalances in the forex market.
Specifically, a large quantity of forex flows overseas for low interest rates while some domestic banks are taking out loans with high costs from foreign credits.
VEPR noted that Vietnam incurred an estimated fiscal deficit of 6.34% of GDP in 2015, lower than the target of 5% of GDP stipulated by the parliament and 7% earlier forecast by the think tank.
“This situation [large fiscal deficit] has repeated year after year, reflecting the loose fiscal discipline,” said the researchers.