Foreign currency loan restrictions delayed

Foreign currency loan restrictions delayed

The State Bank of Viet Nam's proposed tightening of lending in foreign currency is likely to be delayed until next year.

The central bank on March 8 issued a circular on lending by credit institutions which said they would provide foreign currency loans to import goods and services only if borrowers demonstrate they would have sufficient foreign currency to repay the loans.

But it is not clear how local businesses can establish that, Dau Tu newspaper reported.

Lenders can provide short term loans to pay for imported fuel and for manufacturing projects in prioritised sectors if it is expressly approved by the central bank.

Analysts said the new regulations would significantly reduce the number of people who can get foreign currency loans.

Many enterprises that require foreign currency would have to buy it from banks instead of borrowing like they do at present.

The new regulations are likely to affect trade at a time when exports are leading economic growth, they said.

Truong Van Phuoc, general director of Eximbank, said that the interest rate on foreign currency loans average 4.5 per cent per annum compared to an average of 15 per cent for dong.

Besides, exchange rates have been stable for a long time and the central bank has promised to contain their movement to not more than 3 per cent this year.

This means borrowing in dollars would help borrowers avoid risks, Phuoc said.

This also explained why many banks' foreign currency lending grew rapidly in the last six months, he added.

Borrowers included exporters and all sorts of companies, who all borrowed in dollars because of the very low interest rates.

Nguyen Tuan Anh, general director of the Ut Xi Seafood Processing Joint Stock Company, said the new foreign currency lending regulation forced exporters like his company to borrow in dong.

"Now, we have to borrow dong at high interest rates. This will raise our production costs to a much higher level, thus affecting our competitiveness with similar products from Thailand, India, and Bangladesh," he said.

A spokesperson for a seafood export company in the southern province of An Giang also admitted that in 2011 his company was able to make profit mainly because of borrowing in dollars.

The new regulation would encourage agricultural exporters to import raw materials from abroad to process, thus affecting the country's foreign currency situation, he warned.

But banks too benefit from lending in foreign currencies because the interest rate cap on foreign currency deposits now is 2 per cent.

With both borrowers and lenders benefiting, it is not surprising that they both want the central bank to delay application of the tightened regulations.

SBV Governor Nguyen Van Binh has promised that the circular would only take effect after the economy sees improvement, meaning it will not as long as the economy and export activities remain mired in difficulties.

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