30/05/2016 14:32 GMT+7 Email Print Like 0

Central bank announces new circulars for credit institutions

Hanoi, May 30 (VNA) - Long-awaited amendments to Circular 36/2014/TT-NHNN regulating prudential ratios for the operations of credit institutions and foreign bank branches were officially issued on May 27 afternoon.

Accordingly, under a new circular issued by the State Bank of Vietnam (SBV), the risk index of receivable lending for real estate and securities would be raised from 150 percent (the lowest level) as stipulated in Circular No 36 to only 200 percent.

This is lower than the cap of 250 percent as proposed earlier by the SBV, which has made property investors worry about capital shortage.

The increase will come into effect on January 1, 2017.

The new Circular 06/2016/TT-NHNN also specifies a roadmap for the maximum ratio of short-term funds used for medium and long term loans to be reduced from 60 percent to 40 percent.

Under the newly issued decision, the 60 percent ratio will be kept until December 31 this year. The ratio will be lowered to 50 percent from January 1, 2017 to December 31, 2017. It will drop to 40 percent from the beginning of 2018.

Nguyen Duc Do, Deputy Director of the Financial Economic Institute at the Ministry of Finance’s Finance Academy, said that the SBV’s choice to take such a “soft” measure was completely reasonable when taking into account the economy’s less-than-expected pace of recovery.

If loans to the real estate sector were tightened too fast, it would have negative impacts on the property market in particular and economic growth in general, he said.

To some extent, facilitating the recovery of the real estate market was a measure to deal with the bad debts of commercial banks, Do added.

Currently, the amount of long-term deposits was less than the demand for long-term loans, thus a sudden and strong decrease in the ratio of short-term funds used for medium and long term loans would cause an increase in lending interest rates and a decrease in credit growth.

Do hailed the new policy as a step-by-step adjustment to avoid shocks for the economy.

“I hope that the policy, if accompanied with a stabilisation of dong which helps raise the trust in the currency, will increase the amount of long-term deposits, make commercial banks able to satisfy loan demands and ease interest rate pressure.”

Foreign currency borrowing allowed On the same day, the SBV issued Circular 07/2016/TT-NHNN to supplement and amend some articles of Circular 24/2015/TT-NHNN on providing foreign currency loans by credit institutions and foreign bank branches.

Under the new regulations, from June 1, companies who have demands for short-term loans in foreign currency can borrow from banks to satisfy their short-term capital needs.

Borrowers must commit to have sufficient foreign currency revenue from exports to repay the loans.

After getting the loans, borrowers must immediately sell the amount of foreign currency to the lending institutions under the spot foreign exchange trading method, except for the case that the foreign currency will be used to make payments.

This decision will take effect until December 31, this year.

According to the old regulations, commercial banks are not allowed to provide lending in foreign currency to exporters from 31 March this year.

Banking expert Nguyen Tri Hieu said that the decision would help enterprises, especially small- and medium-sized ones, to reduce costs for capital by getting loans in foreign currency at low interest rates, thereby making exports more competitive.

However, he warned that the policy would raise demand of exporters for foreign currency, thus have effects on the stability of the foreign exchange rate in the near future. Therefore, companies should take careful consideration related to foreign exchange rate.

He suggested that the SBV allow commercial banks to increase the interest rates for US dollar deposits to raise the banks’ liquidity.