Shady foreign loan offers raise alarm

HA NOI — The State Bank of Viet Nam has issued a warning that some foreign individuals claiming to represent international institutions have recently approached ministries and municipal authorities, offering low-interest loans and non-refundable aid on condition of receiving a Vietnamese Government guarantee.

Therefore, the State Bank has issued Official Document No 7824/NHNN-TD reminding its branches and credit institutions nationwide to cautiously consider loan offers in accordance with foreign debt regulations.

Credit institutions were also told to work closely with law firms, embassies, credit rating agencies and bank agents to verify the financial capacity and legal capacity of foreign partners before entering any agreement. Credit institutions and central bank branches were also ordered to report all documents pertaining to foreign loan offering to the State Bank no later than December 31.

State Bank branches were further instructed to support municipal authorities in preventing credit risks arising from foreign loan offers. — VNS

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Central bank asks for foreign exchange reports

Photo: Tuoi Tre

The State Bank of Vietnam has asked credit institutions to provide reports concerning outstanding loans and investments that involve US dollars.

The State Bank is requesting the information so that the institution can begin drafting a monetary policy for the latter months of the year.

Lenders were also told to draw up plans concerning how they will use their foreign currency reserves to pay debt during this year's final quarter and next year's first quarter.

The report must be completed and delivered to the State Bank this Friday.

By the end of September, total outstanding loans in foreign currencies at banks in Ho Chi Minh City were VND186.1 trillion (US$9.5 billion), up 36 per cent against the same period last year.

The US dollar credit growth during September increased by 6.1 percent against August, while the month-on-month dollar credit growth in August was up just 1 percent against July.

In an unusual move, loans in foreign currencies exceeded mobilized capital. Financial experts explained that banks had a surplus of US dollars that they received from mother companies or foreign credit institutions.

This is the second time the central bank has asked for such reports.

In May, commercial banks and financial companies were ordered to provide a detailed report about their foreign exchange operations to help reduce the country's trade deficit and improve Vietnam's payment balance.

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Central bank makes little change to Circular 13

HCMC – The central bank on Monday evening issued a new circular amending Circular 13, but it made little changes to the highly-controversial legal document on safety ratio for banking operations.

In the new document coded Circular 19/2010/TT-NHNN, the State Bank of Vietnam allows banks to calculate 25% of non-term capital deposited by companies as mobilized funds, meaning this capital can be used to make loans. In Circular 13, such deposits cannot be used for loans.

In addition, capital borrowed from other credit institutions with a term of three months or more, and capital borrowed from foreign banks will also be added into mobilized funds for lending. The amount of loans underwritten by a bank will not be considered its own loans under the new amendments.

These changes will help increase the amount of mobilized funds of credit institutions, and is seen a quantitative easing measure by the central bank in response to complaints by banks over Circular 13 as a monetary tightening policy.

The new changes came forth following instructions from the Government, asking the central bank to rethink Circular 13 issued in May this year.

Last Friday, the Prime Minister sent a fresh document to the central bank asking the governor to adjust Circular 13 based on proposals of the National Financial Supervisory Commission. The central bank was also told to assess the real financial market situation, capital raising process of banks, and the Government’s policy on decreasing interest rates.

Apart from aforesaid changes, the new circular still sticks to the loans-to-deposit ratio of 80% for commercial banks, and 85% for non-banking credit institutions. Besides, the central bank also upholds its stance about the risk coefficient at 2.5 for stock and real estate loans, thus restricting the cash flow for these two sectors.

The capital adequacy ratio (CAR) will be also unchanged at 9%. The effective time of new regulations is kept unchanged at October 1 although lenders and the National Financial Supervisory Commission said that was too hurried.

Earlier, the National Financial Supervisory Commission submitted a proposal to the Prime Minister suggesting methods to amend Circular 13.

Le Xuan Nghia, vice chairman of the commission, in a seminar last week in HCMC showed opinion that the Circular 13 was even stricter than the new international safety standard of Basel III. He also objected regulations on CAR, loans-to-deposit, and risk coefficient for stock and real estate loans, as well as time to meet those requirements.

Nghia said given strict regulations on safety in banking operation, the desire of lowering deposit and lending rates of the Government would be far away from reality and enterprises would find it harder to access banks’ loans.

In early August, Vietnam Banks Association representing 14 credit institutions sent a nine-page proposal asking the central bank to amend many things in the Circular. However, the amended regulation meets just a small part of the demand of credit institutions.

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August dollar mobilization falls in city

HCMC – Mobilization of foreign currency, mostly the U.S. dollar, dropped by 4% month-on-month to VND167.1 trillion at credit institutions in the HCMC last month, leading dollar mobilization by late August to grow only 5.3% from late last year.

Meanwhile, outstanding loans in the dollar by late August are estimated at VND175.4 trillion, up 1% month-on-month, according to estimates by the HCMC branch of the State Bank of Vietnam.

Dollar credit growth from January till August was a staggering 28.5%, much higher than the rise in mobilization. So, outstanding loans in dollar at HCMC banks exceed the amount of dollars raised.

According to the central bank’s city branch, outstanding dollar loans made by foreign banks are 48.6% higher than the mobilized amount. The lenders have been able to manage this lending and borrowing imbalance as they have got funds from their mother banks or other foreign credit institutions.

Of note is that the non-performing loan ratio at foreign banks is lowest, at 0.62%.

While dollar credit growth in January-August was high, Vietnam dong credit grew only 5.8% from late last year and mobilization growth by late August was 16.3%.

The first eight months of the year saw outstanding loans at credit institutions in HCMC rising 11.3% from late last year, lower than the mobilization growth rate of 13.3%.

By late July, outstanding real estate loans in HCMC had amounted to VND92.86 trillion, 15% of the total while consumer loans had reached VND32 trillion, 5.19% of the total. The remaining outstanding loans, at nearly 80%, were for manufacturing and trading and came with an interest rate of 12.5% to 14%, the central bank’s city branch said.

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