Banks managing foreign currencies to maintain liquidity

cash_hook_reducedBanks in Laos have implemented stricter controls on foreign currencies notably the Thai baht and US dollar in a move to stabilise exchange rates and sustain the country’s economy.

Speaking to Vientiane Times on Wednesday, bankers attributed the move to falling foreign currency reserves because businesses constantly required Thai baht and US dollars to import goods.

The falling reserves are the result of Laos’ exports, predominantly in mining and agricultural commodities, which have fallen while imports are still increasing and this trade had to be paid for in foreign currencies, according to economists.

According to the Ministry of Industry and Commerce, the total value of exports to 76 countries exceeded US$3.43 billion in 2013-14. In the meantime, the value of goods imported from 73 countries reached US$4.68 billion.

Commercial banks are mostly reluctant to sell foreign currencies to maintain their reserves amidst rising demand for Thai baht and US dollars to import goods from other countries.

A senior banker who asked not to be named said most banks welcomed foreign currencies but were unwilling to sell them.

The move has caused complaints from a frustrated public who can’t always find foreign currency for purchases forcing them to other sources including exchange rate shops or even the black market despite more expensive rates on offer.

Commercial banks recently lowered the interest rates charged on loans and offered on Kip deposit accounts in line with a decision made by the Bank of the Lao PDR, hoping to stimulate economic activity.

On the other hand, banks have raised the interest rates offered on Thai Baht and US dollar deposit accounts hoping to build up reserves of these currencies.

For instance, Phongsavanh Bank raised the interest rates to 6 percent (US$) and 5.75 percent (baht) for 12-month deposits, 7 percent (US$) and 6.75 percent (baht) for 24-month deposit accounts, and 7.50 percent (US$) and 7.25 percent (baht) for 36-month deposit accounts.

A senior economist from the National Economic Research Institute Dr Leeber Leebouapao told Vientiane Times on Thursday that stabilising exchange rates was one of the most important things that could be done to boost business confidence and ensure the economy could move forward.

“Fluctuation of exchange rates will absolutely worsen our economy. Ideally, if banks wish to attract more capital, they will raise interest rates, and if they don’t want the money coming in, they will lower interest rates,” he said.

Despite falling foreign currency reserves, there has been no official report offered to the media this year regarding how many months of imports the nation’s total of Thai baht and US dollar will cover.

As a result of rising demand for foreign currencies, the Lao kip has devalued against the US dollar and Thai baht.

According to BCEL’s exchange rates yesterday: US$1 buys 8,086 Kip, sells for 8,124 Kip. One Baht buys 234.06 Kip, sells for 235.81 Kip.

Fortunately, Dr. Leeber said many development projects invested in by overseas entrepreneurs or projects funded by donors used their own foreign currencies, not intending to buy it from Lao banks.

Source: Vientiane Times