Vietcombank Seals Vietnam's 1st Rate Swap Contract

State-run Bank for Foreign Trade of Vietnam (Vietcombank) said on Tuesday it has become the country's first bank to secure an interest rate swap agreement with a foreign bank.

The unlisted bank signed the contract with the undisclosed foreign bank on July 25 to swap interest rates and two transactions have been conducted so far for a combined value of nearly $30 million, a Vietcombank official told Reuters.

The official, who declined to be identified, said the deal had helped the bank, which uses short-term funds to finance long-term loans carrying fixed interests, avoid risk when deposit rates change.

"The transaction has helped us restructure loans and we can hedge to protect our profit," he said.

Vietcombank handles one third of Vietnam's export and import payments.

Vietnam first allowed domestic banks to execute swaps with overseas credit institutions, which include banks, financial firms and leasing companies, in late 2003.

However, the country's low sovereign credit rating was a major obstacle to reaching swap contracts, bankers say.

In July, global rating agency Moody's raised Vietnam's foreign currency ceiling for bonds and notes and the foreign currency rating for government debt to Ba3, three notches below investment grade, from B1.

Vietnam's foreign currency rating for bank deposits was raised to B1 from B3.

Interest rate swaps allow two borrowers to exchange a series of different interest payments based on the same notional amount. A swap normally involves a fixed rate being swapped for a floating rate, or vice versa.

They allow both parties to get better borrowing rates than they would be able to achieve in the market and can be used as a hedge against changing interest rates.

Vietcombank said it took fixed interest rates on two loans, one on a 9.5-year term and another for 10 years, and paid a floating rate.

(Source: Reuters)
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Published: 09 August, 2005, 21:03:13 (GMT+7)
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